Zombies on the Brink: Evidence from Japan on the Reversal of Monetary Policy Effectiveness

Gee Hee Hong, Deniz Igan and Do Lee

No 2021/044, IMF Working Papers from International Monetary Fund

Abstract: How does unconventional monetary policy affect corporate capital structure and investment decisions? We study the transmission channel of quantitative easing and its potential diminishing returns on investment from a corporate finance perspective. Using a rich bank-firm matched data of Japanese firms with information on corporate debt and investment, we study how firms adjust their capital structure in response to the changes in term premia. Investment responds positively to a reduction in the term premium on average. However, there is a significant degree of cross-sectional variation in firm response: healthier firms increase capital spending and cash holdings, while financially vulnerable firms take advantage of lower long-term yields to refinance without increasing investment.

Keywords: Transmission of unconventional monetary policy; Quantitative easing; Reversal rate; Zombie firms; Corporate balance sheet; Term premium; Corporate investment; WP; zombie firm; firm level; capital structure; coverage ratio (search for similar items in EconPapers)
Pages: 41
Date: 2021-02-19
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-mac and nep-mon
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=50101 (application/pdf)

Related works:
Working Paper: Zombies on the brink: Evidence from Japan on the reversal of monetary policy effectiveness (2022)
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:imf:imfwpa:2021/044

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().