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The impact of monetary policy on the financing behaviour of firms in the Euro area and the UK

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  • Leo De Haan
  • Elmer Sterken

Abstract

According to the 'broad credit view' bank-dependent firms are more strongly affected by monetary contractions than firms with access to non-bank forms of external finance. Within the credit view the bank lending channel focuses on the special role of bank loans, and predicts that monetary contractions reduce loan supply to firms facing information problems. However, the 'relationship lending channel' argues that, especially in bank-based economies, bank-dependent firms have close ties with banks, which may reduce the sensitivity of their use of bank debt to monetary shocks. The sensitivity of corporate debt structures to changes in the monetary policy stance is analysed using a sample of 22,000 firms in the Euro area and the UK. Evidence is found for the credit view, the relationship lending channel, but not for the bank lending channel.

Suggested Citation

  • Leo De Haan & Elmer Sterken, 2006. "The impact of monetary policy on the financing behaviour of firms in the Euro area and the UK," The European Journal of Finance, Taylor & Francis Journals, vol. 12(5), pages 401-420.
  • Handle: RePEc:taf:eurjfi:v:12:y:2006:i:5:p:401-420
    DOI: 10.1080/13518470500459840
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    Cited by:

    1. Lünnemann, Patrick & Mathä, Thomas Y., 2001. "Monetary transmission: empirical evidence from Luxembourg firm level data," Working Paper Series 0111, European Central Bank.
    2. Eleni Angelopoulou & Heather D. Gibson, 2009. "The Balance Sheet Channel of Monetary Policy Transmission: Evidence from the United Kingdom," Economica, London School of Economics and Political Science, vol. 76(304), pages 675-703, October.
    3. Leo De Haan & Elmer Sterken, 2006. "The impact of monetary policy on the financing behaviour of firms in the Euro area and the UK," The European Journal of Finance, Taylor & Francis Journals, vol. 12(5), pages 401-420.
    4. Vithessonthi, Chaiporn & Schwaninger, Markus & Müller, Matthias O., 2017. "Monetary policy, bank lending and corporate investment," International Review of Financial Analysis, Elsevier, vol. 50(C), pages 129-142.
    5. Ferrando, Annalisa & Martinez-Carrascal, Carmen, 2008. "The impact of financial position on investment: an anlysis for non-financial corporations in the euro area," Working Paper Series 943, European Central Bank.
    6. repec:eur:ejesjr:146 is not listed on IDEAS
    7. I. Arnold & C.J.M. Kool & K. Raabe, 2011. "Industry Effects of Bank Lending in Germany," Working Papers 11-21, Utrecht School of Economics.
    8. repec:spr:jecstr:v:6:y:2017:i:1:d:10.1186_s40008-017-0084-9 is not listed on IDEAS
    9. Maria Teresa VALDERRAMA & Sylvia KAUFMANN, "undated". "Modeling Credit Aggregates," EcoMod2004 330600146, EcoMod.
    10. Ruslan Aliyev & Dana Hajkova & Ivana Kubicova, 2015. "The Impact of Monetary Policy on Financing of Czech Firms," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 65(6), pages 455-476, December.
    11. Kazuo Ogawa & Elmer Sterken & Ichiro Tokutsu, 2013. "The trade credit channel revisited: evidence from micro data of Japanese small firms," Small Business Economics, Springer, vol. 40(1), pages 101-118, January.
    12. Hans Degryse & Kent Matthews & Tianshu Zhao, 2015. "SMEs and Access to Bank Credit: Evidence on the Regional Propagation of the Financial Crisis in the UK," CESifo Working Paper Series 5424, CESifo Group Munich.
    13. Eleni Angelopoulou & Heather D. Gibson, 2007. "The Balance Sheet Channel of Monetary Policy Transmission: Evidence from the UK," Working Papers 53, Bank of Greece.
    14. KOC, Umit & SAHIN, Hasan, 2016. "Cash-Flow And Investment: A Panel Quantile Approach," MPRA Paper 77437, University Library of Munich, Germany.
    15. Natalia Nehrebecka & Aneta Dzik-Walczak, 2016. "Publication selection bias in the sources of financing the enterprises research? A Meta-Regression Analysis," Working Papers 2016-02, Faculty of Economic Sciences, University of Warsaw.
    16. Meg Adachi-Sato & Chaiporn Vithessonthi, 2016. "Corporate Debt Maturity and Future Firm Performance Volatility," PIER Discussion Papers 29., Puey Ungphakorn Institute for Economic Research, revised May 2016.

    More about this item

    Keywords

    Broad credit view; bank lending channel; relationship lending; monetary policy;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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