Collateral Heterogeneity and Monetary Policy Transmission: Evidence from Loans to SMEs and Large Firms

Abstract

Using administrative firm-bank-loan level data, we document new facts about the U.S. credit market and monetary policy transmission. Private firms that are mostly small-medium-sizeenterprises (SMEs) borrow from banks and use their enterprise's continuation value as collateral. Relative to large publicly listed firms, monetary expansions increase highly levered SMEs' demand for credit and their borrowing capacity because their continuation values rise and their ability to repay debt improves. Our results imply that the effectiveness of monetary policy depends on both the firm-size distribution and the type of collateral pledged.

Micro Responses to Macro Shocks

“…Similar arguments are made inDrechsel (2023), Singh, Suda, andZervou (2023) andCaglio, Darst, and Kalemli-Özcan (2024), among others. When observables are subpopulation indicators such as wealth deciles or size bins, these concerns are greatly alleviated.…”

The Channels of International Comovement

“…A Data Sets (Cerutti, Hale and Minoiu, 2015). Moreover, syndicated loans represent the most common way large public companies receive loans (Caglio, Darst and Kalemli-Özcan, 2021).…”

“…Syndicated loans represent the most common way large public companies receive loans (Caglio, Darst and Kalemli-Özcan, 2021). Approximately one-third of aggregate cross-border lending is in the form of a syndicated loan (Cerutti, Hale and Minoiu, 2015).…”

“…Second, syndicated loans represent most of the cross-border borrowing of large public companies. Syndicated loans are highly representative of how large public companies obtain loans (Caglio, Darst and Kalemli-Özcan, 2021).…”

Financial Shock Transmission to Heterogeneous Firms: The Earnings-Based Borrowing Constraint Channel

“…structure of corporate debt maturity which makes firms with higher rollover risk and higher nominal debt burden more sensitive (Fabiani et al, 2022;Jungherr et al, 2022). 10 Other studies show that the earnings-based borrowing constraint is prevalent also among small firms (Caglio et al, 2021) and emerging market firms (Camara & Sangiacomo, 2022).…”