Discussion paper
DP18787 Corporate debt structure and heterogeneous monetary policy transmission
Using French firm data, we show that corporate debt structure plays a significant role in monetary policy transmission. In addition to interest rate policy, we analyse the impact of a novel ECB-induced sovereign spread shock, related to credit risk and liquidity, and show that both types of policy tightening diminish French firms’ investment. The transmission of conventional shocks is stronger for firms with higher shares of bank debt, but contractionary bond spread shocks lower investment more for firms with higher shares of bond debt. Bond liquidity and credit risk tightening leads to higher bond-bank loan interest rate spreads and lower bond issuance.
£6.00
