How does monetary policy affect corporate capital structure?
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School of Business |
Bachelor's thesis
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Authors
Date
2021
Department
Major/Subject
Mcode
Degree programme
Taloustiede
Language
en
Pages
24
Series
Abstract
In this literature review, I study the effects of monetary policy on corporate capital structure. I consider the effects of both conventional and unconventional monetary policies. As a part of the research question, I also investigate the effects of these on the companies’ debt structure. I also aim to cover how firm-specific factors like size and financial constraints affect the choice of capital structure. I find that, in general, monetary contractions decrease leverage and expansions increase leverage. Due to the loan supply channel of monetary policy conventional monetary contractions de- crease issuance of bank loans and increase issuance of corporate debt securities. As for unconventional monetary expansions, quantitative easing causes an increase in the issuance of debt securities and increases the leverage of financially well-off firms. In addition, smaller firms and financially worse-off firms are not able to respond to changes in monetary policies as easily as larger and financially well-off firms.Description
Thesis advisor
Kitti, MitriKeywords
capital structure, leverage, monetary policy, conventional monetary policy, unconventional monetary policy