Firm Characteristics, Financial Composition and Response to Monetary Policy: Evidence from Indian Data

Ghosh, Saibal (2010): Firm Characteristics, Financial Composition and Response to Monetary Policy: Evidence from Indian Data. Published in: Journal of Indian Business Research , Vol. 2, (October 2010)

Abstract

The article examines the evidence for credit channel on the composition of corporate finance during tight and loose periods of monetary policy, using micro-level data on Indian firms for 1995-2007. The findings provide evidence in favor of the relationship lending view, although the magnitude and extent of the response varies according to firm characteristics.

• Item Type: MPRA Paper
• Language: English
• Keywords: monetary policy; corporate finance; leverage; Altman-Z; relationship lending; India
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy

References

Berger, A.N., Martinez Peria, M.S. Klapper, L. and Zaidi, R. (2008), “Bank ownership type and banking relationships”, Journal of Financial Intermediation Vol. 17 No.1, pp.37-62.

Bernanke, B.S. and Gertler, M. (1995), “Inside the black box: The credit channel of monetary policy transmission”, Journal of Economic Perspectives Vol.9 No.1, pp. 27-48.

Bernanke, B.S., Gertler, M. and Gilchrist, S. (1996), “The financial accelerator and the flight to quality”, Review of Economics and Statistics Vol.78 No. 1, pp. 1-15.

Boot, A.W.A. (2000), “Relationship lending: What do we know?”, Journal of Financial Intermediation Vol. 9 No.1, pp.7-25.

Centre for Monitoring of Indian Economy (2007). Prowess (Release 3.0), CMIE: Mumbai.

Fazzari, S.M., Hubbard, R.G. and Petersen, B.C. (1988), “Financing constraints and corporate investment”, Brookings Paper on Economic Activity Vol. 1 No. 1, pp. 141-95.

Gertler, M., and Gilchrist, S. (1994), “Monetary policy, business cycle and the behavior of small manufacturing firms”, Quarterly Journal of Economics Vol. 109 No. 2, pp. 309-40.

Kashyap, A.K., Stein, J.C. and Wilcox, D.W. (1993), “Monetary policy and credit conditions: Evidence from the composition of external finance”, American Economic Review Vol. 83 No.1, pp. 73-98.

Kashyap, A.K., Stein, J.C. and Wilcox, D.W. (1996), “Monetary policy and credit conditions: Evidence from the composition of external finance – Reply”, American Economic Review Vol. 86 No. 2, pp. 310-14.

Kashyap, A.K., Lamont, O. and Stein, J.C. (1994), “Credit condition and the cyclical behavior of inventories”, Quarterly Journal of Economics Vol. 109 No. 4, pp. 567-92.

Kiyotaki, N., and Moore, J. (1997), “Credit cycles”, Journal of Political Economy Vol. 105 No. 2, pp. 211-48.

Majumdar, S.K. (1997), “The impact of size and age on firm-level performance: Some evidence from India”, Review of Industrial Organization Vol. 12 No. 2, pp. 231-41.

Mizen, P., and Yalcin, C. (2006), “Access to external finance: Theory and evidence on the impact of monetary policy and firm-specific characteristics”, Journal of Banking and Finance Vol. 30 No. 2, pp. 199-227.

Oliner, S.D. and Rudebusch, G.D. (1996), “Is there a broad credit channel for monetary policy?”, Federal Reserve Bank of San Francisco Economic Review, Vol. 1, pp. 3-13.

Pausch, T., and Welzel, P. (2002), “Credit risk and the role of capital adequacy regulation”, Discussion Paper Series No. 224, University of Augsburg, Netherlands, Available at <www.wiwi.uni-augsburg.de/vwl/institut/paper/224.pdf>.

Petersen, M. A., and Rajan, R.G. (1994), “The benefits of lending relationships: Evidence from small business data”, Journal of Finance Vol. 49 No. 1, pp. 3-37.

Prasad, A., and S. Ghosh (2005), “Monetary policy and corporate behavior in India”, IMF Working Paper No.25. IMF: Washington DC, Available at <www.imf.org/external/pubs/ft/wp/2005/wp0525.pdf>.

Rajan, R.G., and Zingales, L. (1998), “Financial dependence and growth”, American Economic Review Vol. 88 No. 3, pp. 559-86.

Romer, C., and Romer, D. (1990), “New evidence on the monetary transmission mechanism”, Brookings Paper on Economic Activity Vol. 3 No. 1, pp. 149-213.