The Transmission of Monetary Policy to Corporate Investment: The Role of Loan Renegotiation

Eunkyung Lee

Economics Discussion Paper Series from Economics, The University of Manchester

Abstract: I construct a novel dataset comprising over 100,000 loan observations from U.S. firms and estimate that renegotiating existing loans — rather than originating new loans — significantly contributes to the corporate investment response to monetary policy shocks, accounting for half of the aggregate effect. Expansionary monetary policy shocks increase bank credit predominantly through renegotiations, and in turn, firms that renegotiate boost investment the most. By contrast, new loan issuance is driven by the firm’s investment growth prior to the shocks, consequently contributing only a tenth to the overall investment response. Notably, renegotiations amplify investment responses for financially constrained firms. These findings unveil novel dimensions of the channels through which monetary policy affects corporate investment.

Keywords: monetary policy transmission; bank debt; investment; financial constraints; renegotiation; text analysis (search for similar items in EconPapers)
JEL-codes: E22 E32 E52 G21 G32 (search for similar items in EconPapers)
Date: 2023-11
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:man:sespap:2310

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