Presentation: Monetary Policy, Corporate Finance & Investment€¦ · Monetary Policy, Corporate Finance & Investment James Cloyne (UC Davis, NBER & CEPR) Clodo Ferreira (Bank of

Monetary Policy, Corporate Finance & Investment

James Cloyne (UC Davis, NBER & CEPR)Clodo Ferreira (Bank of Spain)Maren Froemel (LBS & BoE)Paolo Surico (LBS & BoE)

March 2019

The views expressed are those of the authors and do not necessarily reflect theviews of the Bank of Spain, the Euro-system, Bank of England, MPC, FPC or

PRA. This research has been funded by the European Research Council.

Monetary Policy and Firm Finance

I How does monetary policy affect firm investment? Which type offirms are most responsive?

I How do firms’ balance sheets respond?

I How important are financial frictions?

Our Approach

� Firm-level panel approach for the US and UKI Heterogeneity in the dynamic effects of policy across firms.I Micro data with macro identification of policy rate changes.

� Which firms change investment the most?I Which proxies for financial constraints should we focus on?I Age, size, growth, leverage, liquidity, dividend status, QI Multivariate heterogeneity analysis.

� What happens to these firms’ balance sheets?I Borrowing, equity, earnings/cash flows, share prices.

� Heterogeneity used to examine the transmission mechanism.

Our Approach





Our Approach





Our Approach





Main Findings

� Investment1. Age is a robust predictor: Younger firms respond the most.

Quantitatively important to account for the aggregate response.

2. Especially pronounced for firms not paying dividends.

3. Robust to controlling for more traditional characteristics.

� Firm Finance4. Younger firms: lower earnings, lower credit scores and leverage.

Less likely to pay dividends. Borrowing is more asset-based.

5. After a contractionary monetary policy, net worth falls for all firms.But borrowing falls the most for younger firms paying no dividends.

� Interpretation of the evidence/channel: higher interest rates–>–> lower asset values –> borrowing falls –> investment falls.

Main Findings









Main Findings









Literature

Empirics...I Age & employment (Haltiwanger et al., 2013, Bahaj et al., 2018)

I Age, size, leverage & business cycles(Dinlersoz et al., 2018, Crouzet & Mehrotra 2018)

I Firm Finance & business cycles(Covas & den Haan, 2011, Begenau & Salomao, 2018)

I Investment & financial frictions (Fazzari et al. 1988, Gertler &Gilchrist 1994, Ottonello & Winberry 2018, Jeenas, 2018)

I Firm borrowing constraints (Lian & Ma, 2018, Drechsel, 2018)

Financial frictions...I Age & growth prospects (Cooley-Quadrini, 2001, Cooper et al. 2006)

I Leverage, asset prices/collateral values & monetary policy(Bernanke, Gertler & Gilchrist, 1999, Kiyotaki & Moore, 1997, etc.)

Outline

Data & Approach

Age as a Proxy for Financial Constraints

Heterogeneity in the Response of Investment

Firm Finance and Balance Sheet Response

Concluding remarks

Firm Data: Panel of Public Firms

I Compustat quarterly panel (US). Worldscope annual panel (UK).Sample period: 1986-2016.

I Also make use of corporate bonds and asset price data(CRSP and Thomson Reuters)

I Key variables of interest:I Investment: capital expenditure/net PPE.I Age: Worldscope years since incorporation.I Other variables: assets, debt, leverage (debt/assets), liquidity,

Tobin’s Q, equity, share prices, earnings/sales, dividends paid,interest payments.

7 / 30

Monetary Policy: Identification

I Gertler-Karadi approach: High frequency surprises in short ratefutures around policy announcements.

I Instrument available since 2001 for the U.K. (Gerko-Rey) and1991 for the U.S. (Gertler-Karadi).

I Gertler-Karadi (2015)/Mertens-Ravn (2013): surprises asproxies for structural shocks in the Vector Autoregression.

I Identifies a series of monetary policy shocks for the full sample.SHOCK SERIES

8 / 30

Empirical Specification

∆hXi,t+h = γhi +

G∑g=1

βhg · I

[Zi,t−1 ∈ g

]· Rt +

G∑g=1

αhg ·I[Zi,t−1 ∈ g

]+εi,t+h

I Baseline Xi,t+h: capex/net PPE at horizon h. Also look at equity,borrowing, earnings, share prices etc.

I Zi,t−1: variable defining a group: age, size, growth, leverage,beta, paying dividends in previous year. Could be multivariate.

I Rt : interest rate in GK/GR instrumented with structural shocks.

9 / 30

Sense Check: The Average Effect

United States United Kingdom

-1-.5

0.5

Percent

1 4 8 12 16 20Quarters

-.6-.4

-.20

.2.4

Perc

ent

0 1 2 3 4Year

Response of the investment ratio to a 25 basis point increase in interest rates. Confidence bands 90%. Firm-time clustering.

Consistent with MACRO EVIDENCE using data from national statistics.IRFs even more similar when reporting at the same ANNUAL FREQUENCY

10 / 30

Outline

Data & Approach




Concluding remarks

Size, Growth and Earnings by AGE

Younger firms are smaller, have lower cash-flows but grow faster

Size Asset growth Earnings

Uni

ted

Sta

tes

4.5

55.

56

6.5

log(

asse

ts)

5 15 25 35 45 55Age

24

68

%

5 15 25 35 45 55Age

24

68

1012

%

5 15 25 35 45 55Age

Uni

ted

Kin

gdom

3.5

44.

55

log(

asse

ts)

5 15 25 35 45 55Age

56

78

910

%

5 15 25 35 45 55Age

89

1011

12%

5 15 25 35 45 55Age

Regressions of the variable of interest on age, squared age, sectorsXtime fixed effects (and size).

12 / 30

Financial Characteristics by AGEYounger firms: lower credit scores/less likely to pay dividends.

Credit scores Dividends & BondsU

nite

dS

tate

s

0.2

.4.6

.81

prob

abili

ty

5 15 25 35 45 55Age

low rating high rating

0.2

.4.6

.81

prob

abili

ty

5 15 25 35 45 55Age

Prob. issuing bondsProb. paying dividends

Prob. buy-backs

Uni

ted

Kin

gdom

6065

7075

80Li

near

Pre

dict

ion

5 15 25 35 45 55Age

Credit Score and Age

0.2

.4.6

.81

Prob

abili

ty

5 15 25 35 45 55Age

Prob. issuing bondsProb. paying dividends

Prob. buyback

Based on regressions of the variable of interest on age, squared age, sectorsXtime fixed effects (and size).

13 / 30

Leverage and Liquidity by AGE

Younger firms are less leveraged/hold more liquid assets

Leverage LiquidityU

nite

dS

tate

s

2527

2931

3335

%

5 15 25 35 45 55Age

1416

1820

%

5 15 25 35 45 55Age

Uni

ted

Kin

gdom

1012

.515

17.5

20%

5 15 25 35 45 55Age

1012

1416

%

5 15 25 35 45 55Age

Based on regressions of the variable of interest on age, squared age, sectorsXtime fixed effects (and size).

14 / 30

Summary: What Does Age Capture?

Younger firms tend to:

I be smaller

I have lower earnings

I have lowerI credit scoresI probability of paying dividends

But younger firms also have:

I lower leverage and higher liquid assets

I faster growth and higher (average) Tobin’s Q

Outline

Data & Approach




Concluding remarks

Response of Investment by AGE

Younger Middle-aged Older

Uni

ted

Sta

tes

-1.5

-.5-1

0.5

Percent

1 4 7 10 13 16 19Quarters

-1.5

-.5-1

0.5

Percent

1 4 7 10 13 16 19Quarters

-1.5

-.5-1

0.5

Percent

1 4 7 10 13 16 19Quarters

Uni

ted

Kin

gdom

-1.5

-1-.5

0.5

Perc

ent

1 2 3 4 5Year end (Q4)

-1.5

-1-.5

0.5

Perc

ent

1 2 3 4 5Year end (Q4)

-1.5

-1-.5

0.5

Perc

ent

1 2 3 4 5Year end (Q4)

25 basis point increase in interest rates. Standard errors clustering by firm and time. Confidence band: 90%.

17 / 30

Investment Response by AGE & DIVIDENDS: U.S.

Younger OlderN

Odi

vide

nds

-1.5

-1-.5

0.5

Percent

1 4 7 10 13 16 19Quarters

-1.5

-1-.5

0.5

Percent

1 4 7 10 13 16 19Quarters

Div

iden

ds

-1.5

-1-.5

0.5

Percent

1 4 7 10 13 16 19Quarters

-1.5

-1-.5

0.5

Percent

1 4 7 10 13 16 19Quarters


18 / 30

Investment Response by AGE & DIVIDENDS: U.K.

Younger OlderN

Odi

vide

nds

-4-2

-10

.5Pe

rcen

t

1 2 3 4 5Year end (Q4)

-4-2

-10

.5Pe

rcen

t

1 2 3 4 5Year end (Q4)

Div

iden

ds

-4-2

-10

.5Pe

rcen

t

1 2 3 4 5Year end (Q4)

-4-2

-10

.5Pe

rcen

t

1 2 3 4 5Year end (Q4)


19 / 30

YOUNGER Firms Drive the Average Effect

Younger OlderNo Div Paid Div No Div Paid Div

U.S. 75.5% 6.7% 13.0% 4.8%[ 68.1 , 82.8 ] [ -1.6 , 15.5 ] [ 11.7 , 14.5 ] [ 1.9 , 7.4 ]

U.K. 83.6% 13.1% 2.9% 0.4%[ 70.4 , 96.8 ] [ 2.9 , 23.2 ] [ -2.2 , 8.1 ] [ -5.9 , 6.9 ]

Notes: 95% CI in square brackets

20 / 30

Multidimensional Heterogeneity Analysis

Age is correlated with a range of other factors. Do our IRFs simplycapture one of these other factors? No.

Results are robust to conditioning on:

1. Size charts

2. Leverage charts

3. Liquidity charts

4. Firm growth charts and Tobin’s Q charts

5. Risk see section 7.2 in the paper

21 / 30

Outline

Data & Approach




Concluding remarks

BORROWING responds most for Younger/No Div.

Younger & NO dividends Older & Paying dividendsU

nite

dS

tate

s

-4-2

02

Percent

1 4 7 10 13 16 19Quarters

-4-2

02

Percent

1 4 7 10 13 16 19Quarters

Uni

ted

Kin

gdom

-5-2

02

Perc

ent

1 2 3 4 5Year end (Q4)

-5-2

02

Perc

ent

1 2 3 4 5Year end (Q4)

25 basis point increase in interest rates. Standard errors clustering by firm and time. Confidence band: 90%.Muted, more homogeneous and less persistent response of interest payments

23 / 30

Borrowing: Asset vs. Earning-Based

∆Bi,t =G∑

g=1

β1,g ·I [Zi,t−1 ∈ g]·COLLi,t−1+G∑

g=1

β2,g ·I [Zi,t−1 ∈ g]·EBITDAi,t−1+X′i,tγ+εi,t

U.K. U.S.Young / No Div Old / Div Young / No Div Old / Div

COLLATERAL

0.025*** 0.012 0.063*** 0.038**(0.009) (0.009) (0.013) (0.014)

EBITDA

-0.013 0.069*** 0.007 0.048**(0.011) (0.019) (0.016) (0.018)

Dependent variable: ∆ long-term debt

Note: regressions include time-sector, group and firm fixed effects, plus a range of other lagged firms’ characteristics ascontrols. Standard errors are clustered by time and firm.

24 / 30


∆Bi,t =G∑

g=1


g=1



COLLATERAL 0.025*** 0.012

0.063*** 0.038**

(0.009) (0.009)

(0.013) (0.014)

EBITDA -0.013 0.069***

0.007 0.048**

(0.011) (0.019)

(0.016) (0.018)



24 / 30


∆Bi,t =G∑

g=1


g=1



COLLATERAL 0.025*** 0.012 0.063*** 0.038**(0.009) (0.009) (0.013) (0.014)

EBITDA -0.013 0.069*** 0.007 0.048**(0.011) (0.019) (0.016) (0.018)



24 / 30

EQUITY (MKT. VALUE) falls


nite

dS

tate

s

-8-6

-4-2

02

Percent

1 4 7 10 13 16 19Quarters

-8-6

-4-2

02

Percent

1 4 7 10 13 16 19Quarters

Uni

ted

Kin

gdom

-8-4

-20

2Pe

rcen

t

1 2 3 4 5Year end (Q4)

-8-4

-20

2Pe

rcen

t

1 2 3 4 5Year end (Q4)

25 basis point increase in interest rates. Standard errors clustering by firm and time. Confidence band: 90%. Share Price

25 / 30

Response of EARNINGS


nite

dS

tate

s

-1.5

-1-.5

0.5

1Percent

1 4 7 10 13 16 19Quarters

-1.5

-1-.5

0.5

1Percent

1 4 7 10 13 16 19Quarters

Uni

ted

Kin

gdom

-1.5

-1-.5

0.5

11.

5Pe

rcen

t

1 2 3 4 5Year end (Q4)

-1.5

-1-.5

0.5

11.

5Pe

rcen

t

1 2 3 4 5Year end (Q4)

25 basis point increase in interest rates. Standard errors clustering by firm and time. Confidence band: 90%. EBITDA

26 / 30

Transmission Mechanism

To recap:I Net worth falls for all groups.

I Borrowing of younger-no dividend firms is more correlated withasset values than with earnings.

I Borrowing only significantly falls for these firms.

Other channels?

1. Demand2. Growth and profitability3. Liquidity4. Risk

27 / 30

Sensitivity analysis

Results are robust to

I survival bias

I information effect

I sectoral heterogeneity

I ending the sample in 2007

28 / 30

Our contribution: FIVE NEW FINDINGS...

1. Younger firms respond more than any other group and drive theaggregate response of investment to interest rate changes

2. Results are more pronounced for young firms paying nodividends and robust to controlling for other firm characteristics

3. Younger firms’ borrowing is more asset-based (thanearning-based)

4. Net worth and share prices move for all firms

5. Borrowing responds most for younger firms.

29 / 30

Our contribution: FIVE NEW FINDINGS...

1. Younger firms respond more than any other group and drive theaggregate response of investment to interest rate changes

2. Results are more pronounced for young firms paying nodividends and robust to controlling for other firm characteristics

3. Younger firms’ borrowing is more asset-based (thanearning-based)

4. Net worth and share prices move for all firms

5. Borrowing responds most for younger firms.

29 / 30

...and AN INTERPRETATION

I Younger firms tend to borrow against the value of their assets tofund capital expenditure.

I Rate increases push down asset prices and collateral values.

I Borrowing constraints tighten: borrowing and investment falls.

I Younger firms account for a sizable part of the aggregateresponse of investment.

Young firms face financial frictions. Fluctuations in collateraland asset values can play a key role in the MTM.

30 / 30

Extra Slides

31 / 30

Monetary Policy Surprises and Shocks

High-frequency Surprises Policy ShocksU

nite

dS

tate

s

-.3-.2

-.10

.1%

1990m1 1993m1 1996m1 1999m1 2002m1 2005m1 2008m1 2011m1 2014m1Date

-3-2

-10

12

3%

1987m1 1991m1 1995m1 1999m1 2003m1 2007m1 2011m1 2015m1Date

Uni

ted

Kin

gdom

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Date

-0.06

-0.04

-0.02

0

0.02

0.04

0.06

0.08

1985 1990 1995 2000 2005 2010 2015

Date

-4

-3

-2

-1

0

1

2

3

Back

32 / 30

Investment: National Statistics vs Micro dataLevels Growth rates

Uni

ted

Sta

tes

66.

57

7.5

8R

eal I

nves

tmen

t (lo

g)

1985 1990 1995 2000 2005 2010 2015Date

National Statistics Aggregated Micro Data

-30

-20

-10

010

20%

-20

-10

010

%

1985 1990 1995 2000 2005 2010 2015Date

National Statistics Aggregated Micro Data

Uni

ted

Kin

gdom

8.5

99.

510

10.5

Rea

l Inv

estm

ent (

log)

1985q1 1990q1 1995q1 2000q1 2005q1 2010q1 2015q1Date

National Statistics Aggregated from Micro-Data

-20

020

40%

-20

-10

010

2030

%

1985q1 1990q1 1995q1 2000q1 2005q1 2010q1 2015q1Date

National Statistics Aggregated from Micro-Data

Back

33 / 30

The response of aggregate investment

United Kingdom United States

4 8 12 16

Quarters

-1.5

-1.25

-1

-0.75

-0.5

-0.25

0

0.25

0.5

Per

cent

dev

iatio

n

4 8 12 16

Quarters

-1.5

-1.25

-1

-0.75

-0.5

-0.25

0

0.25

0.5

Per

cent

dev

iatio

n

Monetary Policy shock: 25 basis point increase. Bootstrapped Standard errors.Back to average effect

34 / 30

The response of aggregate investment

United Kingdom United States

Inve

stm

ent

4 8 12 16

Quarters

-1.5

-1.25

-1

-0.75

-0.5

-0.25

0

0.25

0.5

Per

cent

dev

iatio

n

4 8 12 16

Quarters

-1.5

-1.25

-1

-0.75

-0.5

-0.25

0

0.25

0.5

Per

cent

dev

iatio

n

Inte

rest

rate

4 8 12 16

Quarters

-0.25

-0.2

-0.15

-0.1

-0.05

0

0.05

0.1

0.15

0.2

0.25

Per

cent

dev

iatio

n

4 8 12 16

Quarters

-0.25

-0.2

-0.15

-0.1

-0.05

0

0.05

0.1

0.15

0.2

0.25

Per

cent

dev

iatio

n


35 / 30

The response of selected macro variables

Employment Credit Spread IP

Uni

ted

Sta

tes

4 8 12 16

Quarters

-0.5

-0.25

0

0.25

Per

cent

dev

iatio

n

12 24 36 48

Months

-0.2

-0.1

0

0.1

0.2

0.3

0.4

Per

cent

dev

iatio

n

12 24 36 48

Months

-1.4

-1.2

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

Per

cent

dev

iatio

n

Uni

ted

Kin

gdom

12 24 36 48

Months

-0.5

-0.25

0

0.25

Per

cent

dev

iatio

n

12 24 36 48

Months

-0.2

-0.1

0

0.1

0.2

0.3

0.4P

erce

nt d

evia

tion

12 24 36 48

Months

-1.4

-1.2

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

Per

cent

dev

iatio

n


36 / 30

The U.S. average effect reported at annual frequency

United States United Kingdom

-1-.5

0.5

Perc

ent

1 2 3 4 5End year (Q4)

-.6-.4

-.20

.2.4

Perc

ent

0 1 2 3 4Year

25 basis point increase in interest rates. Standard errors clustering by firm and time. Confidence band: 90%.Back to average effect

37 / 30

Investment responses by PAYING DIVIDENDS

NO dividends paid Dividends paidU

nite

dS

tate

s

-1.5

-1-.5

0.5

Percent

1 4 7 10 13 16 19Quarters

-1.5

-1-.5

0.5

Percent

1 4 7 10 13 16 19Quarters

Uni

ted

Kin

gdom

-2-1

-.50

.5Pe

rcen

t

1 2 3 4 5Year end (Q4)

-2-1

-.50

.5Pe

rcen

t

1 2 3 4 5Year end (Q4)


38 / 30

Investment response by SIZE

Smaller Medium Larger

Uni

ted

Sta

tes

-1.5

-1-.5

0.5

Percent

1 4 7 10 13 16 19Quarters

-1.5

-1-.5

0.5

Percent

1 4 7 10 13 16 19Quarters

-1.5

-1-.5

0.5

Percent

1 4 7 10 13 16 19Quarters

Uni

ted

Kin

gdom

-1-.5

0.5

Perc

ent

1 2 3 4 5Year end (Q4)

-1-.5

0.5

Perc

ent

1 2 3 4 5Year end (Q4)

-1-.5

0.5

Perc

ent

1 2 3 4 5Year end (Q4)


39 / 30

‘Controlling’ for (SMALLER) size

NO dividends & Younger PAY dividends & OlderU

nite

dS

tate

s

-2-1

01

23

Percent

1 4 7 10 13 16 19Quarters

-2-1

01

23

Percent

1 4 7 10 13 16 19Quarters

Uni

ted

Kin

gdom

-4-2

-10

.5Pe

rcen

t

1 2 3 4 5Year end (Q4)

-4-2

-10

.5Pe

rcen

t

1 2 3 4 5Year end (Q4)

25 basis point increase in interest rates. Standard errors clustering by firm and time. Confidence band: 90%.Back to robustness summary

40 / 30

Investment response by ASSET GROWTHFaster-growing Slower-growing

Uni

ted

Sta

tes

-1.5

-1-.5

0.5

Percent

1 4 7 10 13 16 19Quarters

-1.5

-1-.5

0.5

Percent

1 4 7 10 13 16 19Quarters

Uni

ted

Kin

gdom

-1-.5

0.5

Perc

ent

1 2 3 4 5Year end (Q4)

-1-.5

0.5

Perc

ent

1 2 3 4 5Year end (Q4)


41 / 30

‘Controlling’ for (FASTER) asset growth


nite

dS

tate

s

-2-1

0.5

Percent

1 4 7 10 13 16 19Quarters

-2-1

0.5

Percent

1 4 7 10 13 16 19Quarters

Uni

ted

Kin

gdom

-4-2

-10

.5Pe

rcen

t

1 2 3 4 5Year end (Q4)

-4-2

-10

.5Pe

rcen

t

1 2 3 4 5Year end (Q4)

25 basis point increase in interest rates. Standard errors clustering by firm and time. Confidence band: 90%.Back to robustness summary Back to mechanism

42 / 30

Investment response by LEVERAGE

Lower Medium Higher

Uni

ted

Sta

tes

-1.5

-1-.5

0.5

Percent

1 4 7 10 13 16 19Quarters

-1.5

-1-.5

0.5

Percent

1 4 7 10 13 16 19Quarters

-1.5

-1-.5

0.5

Percent

1 4 7 10 13 16 19Quarters

Uni

ted

Kin

gdom

-4-2

-10

2Pe

rcen

t

1 2 3 4 5Year end (Q4)

-4-2

-10

2Pe

rcen

t

1 2 3 4 5Year end (Q4)

-4-2

-10

2Pe

rcen

t

1 2 3 4 5Year end (Q4)


43 / 30

‘Controlling’ for (LOWER) leverage


nite

dS

tate

s

-2-1

0.5

Percent

1 4 7 10 13 16 19Quarters

-2-1

0.5

Percent

1 4 7 10 13 16 19Quarters

Uni

ted

Kin

gdom

-4-2

-10

.5Pe

rcen

t

1 2 3 4 5Year end (Q4)

-4-2

-10

.5Pe

rcen

t

1 2 3 4 5Year end (Q4)

25 basis point increase in interest rates. Standard errors clustering by firm and time. Confidence band: 90%.Back to robustness summary

44 / 30

Investment response by LIQUIDITY

Lower Medium Higher

Uni

ted

Sta

tes

-1.5

-1-.5

0.5

Percent

1 4 7 10 13 16 19Quarters

-1.5

-1-.5

0.5

Percent

1 4 7 10 13 16 19Quarters

-1.5

-1-.5

0.5

Percent

1 4 7 10 13 16 19Quarters

Uni

ted

Kin

gdom

-.50

.5Pe

rcen

t

1 2 3 4 5Year end (Q4)

-.50

.5Pe

rcen

t

1 2 3 4 5Year end (Q4)

-.50

.5Pe

rcen

t

1 2 3 4 5Year end (Q4)


45 / 30

‘Controlling’ for (HIGHER) liquidity


nite

dS

tate

s

-2-1

0.5

Percent

1 4 7 10 13 16 19Quarters

-2-1

0.5

Percent

1 4 7 10 13 16 19Quarters

Uni

ted

Kin

gdom

-4-2

-10

.5Pe

rcen

t

1 2 3 4 5Year end (Q4)

-4-2

-10

.5Pe

rcen

t

1 2 3 4 5Year end (Q4)


46 / 30

Investment response by TOBIN’S QHigher Lower

Uni

ted

Sta

tes

-1.5

-1-.5

0.5

Percent

1 4 7 10 13 16 19Quarters

-1.5

-1-.5

0.5

Percent

1 4 7 10 13 16 19Quarters

Uni

ted

Kin

gdom

-1-.5

0.5

Perc

ent

1 2 3 4 5Year end (Q4)

-1-.5

0.5

Perc

ent

1 2 3 4 5Year end (Q4)


47 / 30

‘Controlling’ for (HIGHER) Tobin’s Q


nite

dS

tate

s

-2-1

0.5

Percent

1 4 7 10 13 16 19Quarters

-2-1

0.5

Percent

1 4 7 10 13 16 19Quarters

Uni

ted

Kin

gdom

-4-2

-10

.5Pe

rcen

t

1 2 3 4 5Year end (Q4)

-4-2

-10

.5Pe

rcen

t

1 2 3 4 5Year end (Q4)


48 / 30

US Investment Response by BETA and ALPHA

Low Medium High

Bet

a

-1.5

-1-.5

0.5

Percent

1 4 7 10 13 16 19Quarters

-1.5

-1-.5

0.5

Percent

1 4 7 10 13 16 19Quarters

-1.5

-1-.5

0.5

Percent

1 4 7 10 13 16 19Quarters

Alp

ha

-1.5

-1-.5

0.5

Percent

1 4 7 10 13 16 19Quarters

-1.5

-1-.5

0.5

Percent

1 4 7 10 13 16 19Quarters

-1.5

-1-.5

0.5

Percent

1 4 7 10 13 16 19Quarters


49 / 30

‘Controlling’ for (HIGH) Alpha/Beta (US)

NO dividends & Younger PAY dividends & Older

Bet

aA

lpha


50 / 30

Firms Who Grow Old

Young & NO dividends Old & Paying dividends

Uni

ted

Sta

tes

-1.5

-1-.5

0.5

Percent

1 4 7 10 13 16 19Quarters

-1-.5

0.5

11.5

Percent

1 4 7 10 13 16 19Quarters


51 / 30

More homogeneous INTEREST PAYMENTS response


nite

dS

tate

s

-4-2

02

4Percent

1 4 7 10 13 16 19Quarters

-4-2

02

4Percent

1 4 7 10 13 16 19Quarters

Uni

ted

Kin

gdom

-10

-5-2

02

5Pe

rcen

t

1 2 3 4 5Year end (Q4)

-10

-5-2

02

5Pe

rcen

t

1 2 3 4 5Year end (Q4)


Back to Borrowing

52 / 30

SHARE PRICE falls


nite

dS

tate

s

-8-6

-4-2

02

Percent

1 4 7 10 13 16 19Quarters

-8-6

-4-2

02

Percent

1 4 7 10 13 16 19Quarters

Uni

ted

Kin

gdom

-8-4

-20

1P

erce

nt

1 2 3 4 5Years

-8-4

-20

1P

erce

nt

1 2 3 4 5Years

Monetary Policy shock: 25 basis point increase. Standard errors clustering: by firms and time. Confidence band: 90%.Back

53 / 30

Response of EBITDA


nite

dS

tate

s

-3-2

-10

12

Percent

1 4 7 10 13 16 19Quarters

-3-2

-10

12

Percent

1 4 7 10 13 16 19Quarters

Uni

ted

Kin

gdom

-4-2

-1-.5

02

Perc

ent

1 2 3 4 5Year end (Q4)

-4-2

-1-.5

02

Perc

ent

1 2 3 4 5Year end (Q4)

25 basis point increase in interest rates. Standard errors clustering by firm and time. Confidence band: 90%. Back

54 / 30

Documents

Presentation: Monetary Policy, Corporate Finance & Investment€¦ · Monetary Policy, Corporate Finance & Investment James Cloyne (UC Davis, NBER & CEPR) Clodo Ferreira (Bank of