Financial Shock Transmission to Heterogeneous Firms: The Earnings-Based Borrowing Constraint Channel
IMF Working Papers, September 15, 2023
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- Financial Shock Transmission to Heterogeneous Firms: The Earnings-Based Borrowing Constraint Channel
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Bibliographic details
- Authors: Livia Chiţu, Magdalena Grothe, Tatjana Schulze, Ine Van Robays
- Published: September 15, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400252938.001
Authors and Publication
- By Livia Chiţu, Magdalena Grothe, Tatjana Schulze, Ine Van Robays
- September 15, 2023
- IMF Working Papers, Working Paper No. 2023/196
- Pages: 52
- Volume: 2023
- Issue: 196
- DOI: https://doi.org/10.5089/9798400252938.001
- Stock No: WPIEA2023196
- ISBN: 9798400252938
- ISSN: 1018-5941
Research Question and Scope
- Study the heterogeneous impact of jointly identified monetary policy and global risk shocks on corporate funding costs.
- Focus on disentangling monetary policy shocks and global risk shocks in a structural Bayesian Vector Autoregression framework.
- Investigate effects on funding costs of heterogeneous U.S. firms using micro-data.
- Contrast mechanisms from asset-based collateral constraints with the earnings-based borrowing constraint hypothesis.
- Differentiate firms across leverage and earnings distributions.
Methods
- Structural Bayesian Vector Autoregression is used to jointly identify monetary policy and global risk shocks.
- Micro-level firm data for the United States are used to trace heterogeneous effects across firms varying by leverage and earnings.
- Mechanism testing involves contrasting:
- Traditional financial frictions arising from asset-based collateral constraints.
- The earnings-based borrowing constraint hypothesis.
Key Findings
- Empirical evidence strongly supports the earnings-based borrowing constraint hypothesis.
- Global risk shocks have stronger effects on corporate funding costs compared with monetary policy shocks.
- Effects of global risk shocks on funding costs are more heterogeneous and depend on firms' position within the earnings distribution.
Subject Areas and Keywords
- Subject: Asset prices, Bonds, Corporate bonds, Financial institutions, Labor, Monetary policy, Monetary tightening, Prices, Wages
- Keywords: Asset prices, Bonds, borrowing constraint channel, constraint hypothesis, Corporate bonds, Corporate spreads, earnings distribution, earnings-based borrowing constraint, funding cost, Global, global risk shocks, heterogeneous firms, monetary policy shocks, Monetary tightening, shock transmission, tail firm, Wages
IMF Working Paper No. 2023/196 — "Financial Shock Transmission to Heterogeneous Firms: The Earnings-Based Borrowing Constraint Channel" (September 15, 2023)
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