Monetary policy, bank lending and corporate investment

Abstract

The purpose of this study is to shed light on the chain of causality from macroeconomic financial policy to the microeconomic investment function. Concretely, we aim to provide an in-depth analysis of the relationships between the monetary policy of central banks, the loan policy of commercial banks, and the investment behavior of firms. We focus on countries that conduct their monetary policy under the inflation-targeting framework. Our empirical analysis with data from Germany, Switzerland and Thailand provides several new insights. First, after controlling for the US monetary policy, the monetary policy in Germany andThailand appears to influence the banks' lending rate in the short run (i.e. within two months), whereas the monetary policy in Switzerland seems to be ineffective at influencing the banks' lending rate in the short run. Second, our results show that the banks' lending rate has a negative effect on their loans and that this negative effect is weakened by their growth opportunities. Third, we find that the supply of bank loans plays a more pivotal role in determining firms' investment than the lending rate. Last but not least, we document that neither the lending rate nor the loan-to-assets ratio moderates the sensitivity of the firms' investment to growth opportunities. JEL classification: E4; E5; G1; G2; G3

The Bank Lending Channel of Monetary Transmission in Turkey

“…With only bank fixed effects, two bank-level factors which are the equity ratio (EQUITYTA) and operating performance (ROA) have significant association with bank loans. These findings are generally in line with the findings of Vithessonthi et al (2017).…”

“…Consistent with the regression results, it can be suggested that the monetary policy affects banks' lending rate in Turkey in the short-run (within three months). This finding supports the findings of Vithessonthi et al (2017) who determined that after controlling for the US monetary policy, the monetary policy in Germany and Thailand appears to influence banks' lending rate in the short-Business and Economics Research Journal, 10(2):313-326, 2019 N. Turguttopbas run (i.e. within two months), but not in Switzerland.…”

“…With bank-fixed effects and period-fixed effects, two bank-level control variables which are the equity ratio (EQUITYTA) and INTRATE are determined to have positive relationship with loan ratio. The latter effect is controversial to the finding of Vithessonthi et al (2017) who found negative and significant effect of INTRATE on bank loans. This can be explained by the high dependence of banking sector financing in Turkey in tough times when lending rates are increasing.…”

“…The short term response of the interest rate environment has been critical in order to create desired shifts by the policy changes. In order to test the stated hypothesis in Turkish financial markets, both deterministic approach of Brämer et al (2013) and the contributions of Vithessonthi et al (2017) to their analysis are used in this analysis.…”

Loose Monetary Policy and Corporate Investment of Manufacturing Firms in the Czech Republic

“…They constructed their own index of financial constraints, but because of shortcomings provided in the paper, they would like to conduct future research into the topic. Vithessonthi et al (2017) conducted a study focused on monetary policy, bank lending and corporate investment. They aimed to answer the question if monetary policy affects corporate investment in countries that use inflation targeting.…”