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Firm net worth, external finance premia and monitoring cost - estimates based on firm-level data

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  • Dr. Gregor Bäurle
  • Sarah M. Lein
  • Elizabeth Steiner

Abstract

Based on a large panel of balance sheets and income statements of Swiss nonfinancial firms from 1998 to 2016, we estimate the sensitivity of the cost of external finance to firm net worth using exogenous variation in net worth. We find that firm net worth is inversely related to the external finance premium, consistent with models featuring financial frictions as in Bernanke, Gertler, and Gilchrist (1999). Through the lens of their costly state verification setup, we provide a range for the monitoring cost implied by our estimated sensitivity of the cost of external finance to net worth. Our implied estimate of the monitoring cost ranges between 15 and 20 percent, consistent with an economically significant financial friction.

Suggested Citation

  • Dr. Gregor Bäurle & Sarah M. Lein & Elizabeth Steiner, 2022. "Firm net worth, external finance premia and monitoring cost - estimates based on firm-level data," Working Papers 2022-07, Swiss National Bank.
    • Handle: RePEc:snb:snbwpa:2022-07
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    More about this item

    Keywords

    External finance premium; net worth; firm-level balance sheet data; costly state verification;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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