Explaining Fluctuations in the Composition of Firms' External Finance: New Tests of the Bank Lending Channel

Posted: 12 Apr 1995

See all articles by Julian Wright

Julian Wright

National University of Singapore (NUS) - Department of Economics

Date Written: February 1995

Abstract

Using the insights of a model of debt choice I test the bank lending channel (monetary policy works by directly affecting bank lending). The model stresses the importance of controlling for changes in firm cash flow or even better comparing the behavior of bank debt with other forms of debt for similar quality firms. My tests attempt to do exactly this. At the macro level I compare the behavior of bank lending with finance company lending as well as with all other types of debt, but controlling for changes in economy wide cash flow. At the micro level I utilize a unique data set which combines data on firms intermediated and non- intermediated debt from Moody's manuals with data from Compustat. Using both micro and macro approaches I find little support for a bank lending channel. Instead I find that fluctuations in firm cash flow appear to drive changes in the various debt instruments used by firms, both at the micro and macro level.

JEL Classification: E44, G32

Suggested Citation

Wright, Julian, Explaining Fluctuations in the Composition of Firms' External Finance: New Tests of the Bank Lending Channel (February 1995). Available at SSRN: https://ssrn.com/abstract=6093

Julian Wright (Contact Author)

National University of Singapore (NUS) - Department of Economics ( email )

AS2 Level 6, 1 Arts Link
Singapore 117570
Singapore
6568743941 (Phone)
6567752646 (Fax)

HOME PAGE: http://profile.nus.edu.sg/fass/ecsjkdw/

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
763
PlumX Metrics