The Firm-Level Effects of Monetary Policy: Implications for Firm Performance

Monetary Policy and Inequality: The Finnish Case

“…13 For those individuals who are significant negative impact of contractionary monetary policy shocks on firm dividends. On the other hand, using firm-level data, Binz et al (2021) find a mildly positive effect of an unexpected monetary policy contraction on corporate profits in the short run, reflecting a decrease in firms' investment expenses that outweighs the decrease in revenues due to dampened consumer demand. 11 The robustness of both the probit regression and the Heckman selection model were assessed with respect to changes in the set of explanatory variables.…”

Investment, inflation, and the role of internal information systems as a transmission channel

“…4)." Binz et al (2021) document that, inconsistent with the predictions of the balance sheet channel, absolute net income increases in response to monetary policy shocks as managers cut cost more than consumers cut purchases in response to a rate shock, which leads to a larger decline in expenses than revenues. 7 Supporting our choice of inflation as the causal variable of interest, the imperfect information channel posits that money affects real decisions (here investment) through monetary variables that are measured with noise (here inflation).…”

“…Armstrong et al (2019) explain their findings via the balance sheet channel hypothesis (Bernanke and Gertler 1989), whereby information asymmetry paired with declining firm earnings exacerbates moral hazard and adverse selection problems for the firm (Jensen and Meckling 1976). While Armstrong et al (2019) interpret their findings to underline the role of external accounting quality in the presence of information asymmetry and the effects of the balance sheet channel (Dechow, Ge, and Schrand 2010), subsequent research has challenged this view (e.g., Gallo and Kothari (2019), Binz, Joos, and Kubic (2021)). 6 We forward a novel, alternative explanation for the negative interactive effect between nominal shocks and reporting quality derived from imperfect information models.…”