Monetary Policy, Corporate Finance and Investment

James Cloyne, Clodomiro Ferreira Mayorga (), Maren Froemel and Paolo Surico

No 25366, NBER Working Papers from National Bureau of Economic Research, Inc

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 significant 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.

JEL-codes: E22 E32 E52 (search for similar items in EconPapers)
Date: 2018-12
New Economics Papers: this item is included in nep-bec, nep-mac and nep-mon
Note: ME
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Citations: View citations in EconPapers (57)

Published as James Cloyne & Clodomiro Ferreira & Maren Froemel & Paolo Surico, 2023. "Monetary Policy, Corporate Finance, and Investment," Journal of the European Economic Association, vol 21(6), pages 2586-2634.

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Journal Article: Monetary Policy, Corporate Finance, and Investment (2023)
Working Paper: Monetary policy, corporate finance and investment (2019)
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