Abstract
This chapter aims to scrutinize the role of financial conditions of firms in deciding investment dynamic to monetary policy shocks. Considering leverage and cash holding as explanatory financial variables, firms with low leverage and high cash holding react more to monetary policy shocks in explaining the different investment levels of the firms. The interactions of the monetary policy shock variables are statistically insignificant for the high-leverage and low cash holding firms, but they are statistically significant for the low-leverage and high cash holding firms. This study enhances the literature of corporate investment behavior which can be helpful for developing and optimizing macro-control policies. These results may be of independent interest to policymakers who are concerned about the distributional ramifications of monetary policy across firms.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Similar content being viewed by others
Notes
- 1.
- 2.
The future contracts incorporate all publicly available information at the beginning of the window. Therefore, the public information will not show up as spurious variation in the monetary shock.
References
Abel AB, Blanchard OJ (1986) The present value of profits and cyclical movements in investments. Econometrica 54(2):249–273
Bernanke BS, Gertler ML (1989) Agency costs, net worth, and business fluctuations. Am Econ Rev 79(1):14–31
Bernanke BS, Gertler M, Watson M (1997) Systematic monetary policy and the effects of oil price shocks. Brook Pap Econ Act 28(1):91–157
Cloyne J, Ferreira C, Froemel M, Surico P (2018) Monetary policy, corporate finance and investment, NBER working papers 25366, National Bureau of Economic Research, Inc.
Cooley TF, Quadrini V (1999) Financial markets and firm dynamics. Am Econ Rev 91:1286–1310
Gorodnichenko Y, Weber M (2015) Are sticky prices costly? Evidence from the stock market. Am Econ Rev 106(1):165–199
Gurkaynak RS, Sack B, Swanson ET (2005) Do actions speak louder than words? The response of asset prices to monetary policy actions and statements. Int J Cent Bank 1(1):55–93
Hennessy CA, Whited TM (2007) How costly is external financing? Evidence from a structural estimation. J Financ 62(4):1705–1745
Jeenas P (2018) Monetary policy shocks, financial structure, and firm activity: a panel approach. https://doi.org/10.2139/ssrn.3043579
Mahathanaseth I, Tauer LW (2019) Monetary policy transmission through the Bank lending in Thailand. J Asian Econ 60:14–32
Mongey S, Williams J (2017) Firm dispersion and business cycles: estimating aggregate shocks using panel data. Working Paper
Oliner SD, Rudebusch GD (1996) Is there a broad credit channel for monetary policy? Econ Rev 1:3–13
Ottonello P, Winberry T (2018) Financial heterogeneity and the investment channel of monetary policy, NBER working papers 24221, National Bureau of Economic Research, Inc
Ozdagli A, Velikov M (2019) Show me the money: the monetary policy risk premium. J Financ Econ 135:320–339
Saleem B, Angus F, Gabor P, Paolo S (2018) Employment and the collateral channel of monetary policy, Discussion Papers 1832, Centre for Macroeconomics (CFM)
Silva (2019) Corporate finance, monetary policy, and aggregate demand. J Econ Dyn Control 102(C):1–28
Yang X, Han L, Li W, Yin X, Tian L (2017) Monetary policy, cash holding and corporate investment: evidence from China. China Econ Rev 46(C):110–122
Zulkhibri M (2013) Bank-characteristics, lending channel and monetary policy in emerging markets: bank-level evidence from Malaysia. Appl Financ Econ 23(5):347–362
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2021 The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG
About this chapter
Cite this chapter
Aktar, M., Wenzhou, Q., Al Mahmud, H., Abedin, M.Z. (2021). Monetary Policy Shocks, Financial Heterogeneity, and Corporate Dynamic Investment Activity. In: Adıgüzel Mercangöz, B. (eds) Handbook of Research on Emerging Theories, Models, and Applications of Financial Econometrics. Springer, Cham. https://doi.org/10.1007/978-3-030-54108-8_4
Download citation
DOI: https://doi.org/10.1007/978-3-030-54108-8_4
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-030-54107-1
Online ISBN: 978-3-030-54108-8
eBook Packages: Economics and FinanceEconomics and Finance (R0)