Financial Shock Transmission to Heterogeneous Firms: The Earnings-Based Borrowing Constraint Channel
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Summary:
We study the heterogeneous impact of jointly identified monetary policy and global risk shocks on corporate funding costs. We disentangle these two shocks in a structural Bayesian Vector Autoregression framework and investigate their respective effects on funding costs of heterogeneous firms using micro-data for the US. We tease out mechanisms underlying the effects by contrasting traditional financial frictions arising from asset-based collateral constraints with the recent earnings-based borrowing constraint hypothesis, differentiating firms across leverage and earnings. Our empirical evidence strongly supports the earnings-based borrowing constraint hypothesis. We find that global risk shocks have stronger and more heterogeneous effects on corporate funding costs which depend on firms' position within the earnings distribution.
Series:
Working Paper No. 2023/196
Subject:
Asset prices Bonds Corporate bonds Financial institutions Labor Monetary policy Monetary tightening Prices Wages
Frequency:
regular
English
Publication Date:
September 15, 2023
ISBN/ISSN:
9798400252938/1018-5941
Stock No:
WPIEA2023196
Format:
Paper
Pages:
52
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