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Testing of coherence between monetary policy stimulus, financial flexibility and profitability of manufacturing firms

Testing of coherence between monetary policy stimulus, financial flexibility and profitability of... This paper aims to empirically investigate the evidence of the transmission of monetary policy impulses to firm profitability via manufacturing firms’ short-term and long-term corporate financing decisions.Design/methodology/approachThis study decomposes the receptiveness of firm profitability to monetary policy shock under circumstances of financial flexibility. Additionally, the study extends its scope to undertake a sector-wise analysis of manufacturing firms from 2008 to 2020. Generalized methods of moments (GMM) and quantile regression models are employed.FindingsThe profitability of firms in the chemical, food and machinery sector are positively impacted by short-term financing, whereas the metal sector is positively impacted. But during the tight monetary policy, short-term financing does not appear to be a significant parameter while explaining the firms’ profitability. Secondly, the profitability of firms in the consumer goods and metal sector is positively impacted by long-term financing. Therefore, debt financing of assets could be more appropriate to maximize profitability in these sectors.Originality/valueAnalyzing the transmission of monetary policy impulses to firm profitability by clustering firms with financial flexibility across six key manufacturing sectors makes the study unique. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Managerial Finance Emerald Publishing

Testing of coherence between monetary policy stimulus, financial flexibility and profitability of manufacturing firms

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References (73)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1743-9132
DOI
10.1108/ijmf-07-2022-0298
Publisher site
See Article on Publisher Site

Abstract

This paper aims to empirically investigate the evidence of the transmission of monetary policy impulses to firm profitability via manufacturing firms’ short-term and long-term corporate financing decisions.Design/methodology/approachThis study decomposes the receptiveness of firm profitability to monetary policy shock under circumstances of financial flexibility. Additionally, the study extends its scope to undertake a sector-wise analysis of manufacturing firms from 2008 to 2020. Generalized methods of moments (GMM) and quantile regression models are employed.FindingsThe profitability of firms in the chemical, food and machinery sector are positively impacted by short-term financing, whereas the metal sector is positively impacted. But during the tight monetary policy, short-term financing does not appear to be a significant parameter while explaining the firms’ profitability. Secondly, the profitability of firms in the consumer goods and metal sector is positively impacted by long-term financing. Therefore, debt financing of assets could be more appropriate to maximize profitability in these sectors.Originality/valueAnalyzing the transmission of monetary policy impulses to firm profitability by clustering firms with financial flexibility across six key manufacturing sectors makes the study unique.

Journal

International Journal of Managerial FinanceEmerald Publishing

Published: Oct 24, 2023

Keywords: Monetary policy; Financial flexibility; GMM; Quantile regression models; Profitability; Manufacturing sector

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