Financial shock transmission to heterogeneous firms: the earnings-based borrowing constraint channel

Livia Chiţu, Magdalena Grothe, Tatjana Schulze and Ine Van Robays

No 2860, Working Paper Series from European Central Bank

Abstract: We study the heterogeneous impact of jointly identified monetary policy and global riskshocks on corporate funding costs. We disentangle these two shocks in a structural BayesianVector Autoregression framework and investigate their respective effects on funding costsof heterogeneous firms using micro-data for the US. We tease out mechanisms underlyingthe effects by contrasting financial frictions arising from traditional asset-based collateralconstraints with the recent earnings-based borrowing constraint hypothesis, differentiatingfirms across leverage and earnings. Our empirical evidence strongly supports the earnings-basedborrowing constraint hypothesis. We find that global risk shocks have stronger andmore heterogeneous effects on corporate funding costs which depend on firms’ positionwithin the earnings distribution. JEL Classification: G12, E43, E52

Keywords: corporate spreads; earnings-based borrowing constraint; global risk shocks; heterogeneous firms; monetary policy shocks (search for similar items in EconPapers)
Date: 2023-11
New Economics Papers: this item is included in nep-cba and nep-mon
Note: 1840305
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2860~f13302bf4a.en.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20232860

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().