How and Why Do Small Firms Manage Interest Rate Risk?

51 Pages Posted: 16 Aug 2005 Last revised: 20 Nov 2012

Date Written: September 6, 2006


Although small firms are particularly sensitive to interest rates and other shocks, empirical work on corporate risk management has focused instead on large public companies. This paper studies fixed-rate and adjustable-rate loans to see how small firms manage their exposure to interest rate risk. Credit-constrained firms are found to match significantly more often with fixed-rate loans, consistent with prior research that shows the supply of credit shrinks during periods of rising interest rates. Banks originate a higher share of adjustable-rate loans than other lenders, ameliorating maturity mismatch and exposure to the lending channel of monetary policy. Time-series patterns in the fixed-rate share are consistent with recent evidence on debt market timing.

Keywords: Risk management, Interest rate risk, Loans, Small firms

JEL Classification: G21, G30, G32

Suggested Citation

Vickery, James Ian, How and Why Do Small Firms Manage Interest Rate Risk? (September 6, 2006). Journal of Financial Economics (JFE), Vol. 87, No. 2, 2008, FRB of New York Staff Report No. 215, Available at SSRN: or

James Ian Vickery (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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