CORPORATE CREDIT AND MONETARY POLICY:THE IMPACT OF FIRM-SPECIFICCHARACTERISTICS ON FINANCIAL STRUCTURE

This paper examines the impact of monetary policy on UK firms’ access to bank and market finance whenallowance is made for differences in firm-specific characteristics. A theoretical model determines the cut-off valuesfor project profitability that would allow firms to access bank or market finance. This model predicts that specificcharacteristics in terms of size, age, risk and debt can make a firm more vulnerable to tightening credit wheninterest rates increase. Empirically, the paper shows, using a panel of 16,000 UK firm records over 10 years, thatfirms distributed according to their type (asset size, rating etc) do have differing access to bank lending and marketfinance...