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Accounting quality and the transmission of monetary policy

Christopher S. Armstrong, Stephen Glaeser and John D. Kepler

Journal of Accounting and Economics, 2019, vol. 68, issue 2

Abstract: We examine how firms' accounting quality affects their reaction to monetary policy. The balance sheet channel of monetary policy predicts that the quality of firms' accounting reports plays a role in transmitting monetary policy by affecting information asymmetries between firms and capital providers. Consistent with this prediction, we find that accounting quality moderates firms' equity market response and future investment sensitivity to unexpected changes in monetary policy. Moreover, the former relation is amplified for firms with more growth opportunities and more financial constraints, further consistent with accounting quality moderating the transmission of monetary policy.

Keywords: Monetary policy; Balance sheet channel; Accounting quality; Financial reporting; Information asymmetry; Financial intermediation (search for similar items in EconPapers)
JEL-codes: E44 E51 E52 G30 G32 M41 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:68:y:2019:i:2:s0165410119300606

DOI: 10.1016/j.jacceco.2019.101265

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Journal of Accounting and Economics is currently edited by J. L. Zimmerman, S. P. Kothari, T. Z. Lys and R. L. Watts

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