Monetary Policy and Corporate Behaviour in India

Monetary Policy and Corporate Behaviour in India

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The paper examines the association and corporate behavior for a sample of manufacturing firms in India for the post-reform period 1992-2003. The findings suggest that a contractionary monetary policy lowers overall debt including bank debt, although the lagged response is positive, and listed firms increase their short-term bank borrowings, after monetary tightening. The responses of corporates to a monetary contraction in the post-1997 period has been more pronounced. A disaggregated analysis of responses of firms according to size and leverage largely validates these findings. Two policy implications emerge from the analysis. First, the interest rate transmission channel has strengthened since 1998, and, second, corporates in India, especially listed ones, seem to exhibit relationship lending.I. INTRODUCTION The literature on corporate financial structure is dominated by two competing arguments. ... The results of the latter research (de Haan and Sterken) indicate that private firms, which appear to be more dependent on bank debt for extemal funds, are ... Questions regarding the interface between corporate finance and monetary policy have, however, gained prominence in recent years, anbsp;...

Title:Monetary Policy and Corporate Behaviour in India
Author:International Monetary Fund
Publisher:International Monetary Fund - 2005-02-01


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