Monetary Policy and Firm Heterogeneity: The Role of Leverage Since the Financial Crisis

62 Pages Posted: 21 Jun 2019 Last revised: 27 Sep 2021

See all articles by Aeimit Lakdawala

Aeimit Lakdawala

Wake Forest University - Department of Economics

Timothy Moreland

University of North Carolina (UNC) at Greensboro - Department of Economics

Date Written: September 13, 2021

Abstract

The role of leverage in explaining firm-level responses to monetary policy changed around the financial crisis of 2007-09. The stock price of firms with high leverage was less responsive to monetary policy shocks in the pre-crisis period but has become more responsive since the crisis. We document supporting evidence of this result from firm-level option prices and investment data. We find some suggestive evidence that the higher responsiveness is driven by firms whose leverage is more dependent on long-term debt, pointing to an outsize role for monetary policy affecting long-term funding conditions since the crisis.

Keywords: monetary policy transmission, leverage, firm heterogeneity

JEL Classification: E52, E44, E43, E22

Suggested Citation

Lakdawala, Aeimit and Moreland, Timothy, Monetary Policy and Firm Heterogeneity: The Role of Leverage Since the Financial Crisis (September 13, 2021). Available at SSRN: https://ssrn.com/abstract=3405420 or http://dx.doi.org/10.2139/ssrn.3405420

Aeimit Lakdawala (Contact Author)

Wake Forest University - Department of Economics ( email )

Winston Salem, NC
United States

HOME PAGE: http://aeimit.weebly.com

Timothy Moreland

University of North Carolina (UNC) at Greensboro - Department of Economics ( email )

Greensboro, NC 27402-6165
United States

HOME PAGE: http://timothymoreland.com

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