Skip to main content

Job market paper

How Do Firms Use Finance When Interest Rates Are Low for Long?

This paper analyzes the impact of monetary policy shocks on firms’ spending patterns using a panel of publicly-listed US firms. Delineating the uses of finance into payouts to shareholders, physical and intangible investments, I find evidence in favor of a rise in payouts’ sensitivity to monetary policy changes driven by equity repurchases. In contrast, the sensitivity of real investments remains unchanged. In response to lower interest rates, firms buy back equity above free cash flow and simultaneously issue debt, suggesting a rise in financed payouts. The paper finds suggestive evidence for the role of debt issuance in the transmission of monetary policy to firm-level payouts. The set of unconstrained firms with larger asset size, longer-term debt maturity, and better debt servicing ability drive the increase in sensitivity, suggesting that only the firms with more robust balance-sheet characteristics engage in the financing of payouts. However, the sensitivity of real investments to monetary policy changes is lower for firms that finance payouts.


Macroeconomics, Finance, International finance, Banking

Other papers

The Unholy Trinity: Regulatory Forbearance, Stressed Banks and Zombie Firms Anusha Chari, Nirupama Kulkarni

The Zombie Channel of Monetary Policy Ryan Banerjee and Boris Hofmann

Bank Mergers and Zombie Lending