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Monetary policy, corporate finance and investment

James Cloyne (), Clodomiro Ferreira Mayorga (), Maren Froemel () and Paolo Surico ()
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Maren Froemel: London Business School
Paolo Surico: London Business School, Bank of England and CEPR

No 1911, Working Papers from Banco de España, Working Papers Homepage

Abstract: We provide new evidence on how monetary policy affects investment and firm finance in the United States and the United Kingdom. Younger firms paying no dividends exhibit the largest and most signifcant change in capital expenditure – even after conditioning on size, asset growth, Tobin’s Q, leverage or liquidity – and drive the response of aggregate investment. Older companies, in contrast, hardly react at all. After a monetary policy tightening, net worth falls considerably for all firms but borrowing declines only for younger non-dividend payers, as their external finance is mostly exposed to asset value fluctuations. Conversely, cash-flows change less markedly and more homogeneously across groups. Our findings highlight the role of firm finance and financial frictions in amplifying the effects of monetary policy on investment.

Keywords: monetary policy; financial frictions; firm finance; investment (search for similar items in EconPapers)
JEL-codes: E22 E32 E52 (search for similar items in EconPapers)
Pages: 78 pages
Date: 2019-03
New Economics Papers: this item is included in nep-bec, nep-mac and nep-mon
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Working Paper: Monetary Policy, Corporate Finance and Investment (2018) Downloads
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