Research

Abstract: We uncover a new channel—the zombie lending channel—in the transmission of monetary policy to nonfinancial corporates. This channel originates from the presence of unviable and unproductive (zombie) firms. We identify exogenous variation in monetary conditions around the world by exploiting the international transmission of US monetary policy shocks. We find that tighter monetary policy leads to more favorable credit conditions for zombie firms relative to other firms. Zombies are then able to cut investment and employment by relatively less. This is indicative of evergreening motives by lenders when interest rates rise: lenders face incentives to restructure existing loans of zombie firms to avoid the realization of losses on their balance sheets. Policies that strengthen banks’ balance sheets, that limit banks’ incentives to engage in risky behavior, and laws that allow an efficient resolution of weak firms, may help mitigate zombie lending practices when financial conditions tighten. 

Abstract: This paper examines the spillover effects of the Federal Reserve’s Secondary Market Corporate Credit Facility (SMCCF), launched in March 2020 to support the corporate bond market during the COVID-19 pandemic. Specifically, I investigate how SMCCF impacts bank-dependent private firms through the capital structure channel – firms with access to the bond markets tend to issue more bonds than loans, thereby allowing banks to increase loan supply to firms lacking access to the bond markets. First, I develop a model that explicitly outlines this transmission channel, demonstrating that it only operates through banks with capital constraints. Then, using a loan-level dataset and an event study approach, I establish the existence of this channel following the SMCCF announcement. My findings indicate that SMCCF had limited spillover effects on bank-dependent private firms because the banking sector was not constrained in 2020. This research provides insights into the transmission mechanism of corporate bond purchase programs on the loan markets and suggests that such programs have limited effects in saturated credit markets.  

Abstract: An increasing share of firms borrows from the public financing market, in addition to banks. The paper shows that corporate debt structure matters for the credit channel of monetary policy transmission. Firms with higher dependence on loans experience a lower interest rate pass-through in their borrowing and investment after expansionary monetary policy shocks. But there are no significant differences in responses to contractionary monetary policy shocks. Moreover, this paper shows that leverage matters more for heterogeneous responses to contractionary monetary policy shocks while liquidity matters more for expansionary shocks.