Financial Accelerator Effects in the Balance Sheets of Czech Firms

In this paper we examine a financial accelerator hypothesis analyzing the determinants of firm-level interest rates. Using a panel of the financial statements of 448 Czech firms in 1996- 2002, we find that firm’s balance sheet indicators are important determinant for the firm-level interest rates. Indebtness and market access matter in particular. The strength of balance sheets is procyclical. There is also evidence that monetary policy has stronger effects on small firms and during a period of the excess demand for credit (but not during a downturn).