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Interest burden and external finance choices in emerging markets: Firm-level data evidence from Malaysia

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  • Muhamed Zulkhibri

Abstract

This paper provides empirical evidence on the credit channel of the monetary transmission mechanism within the framework of external finance choices using a firm-level panel data. We estimate the corporate finance behaviour in Malaysia, a country with relatively developed capital market, but significant involvement of banking sector in financing the economy using a panel dataset of over 900 listed firms in Malaysia for the period 1990–2010. The analysis suggests the following insights: firm-specific characteristics are important factor in explaining the corporate financing choices of firms; different monetary conditions affect the rate of interest charged by lenders to firms, with financially constrained firms paying a higher premium; and financially constrained firms have limited access to external finance and are severely affected during times of increasing interest rates. Overall, our results are consistent with the existence of credit channel and support the unequal propagation of monetary policy among firms in different monetary conditions.

Suggested Citation

  • Muhamed Zulkhibri, 2015. "Interest burden and external finance choices in emerging markets: Firm-level data evidence from Malaysia," International Economics, CEPII research center, issue 141, pages 15-33.
    • Handle: RePEc:cii:cepiie:2015-q1-141-2
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    Cited by:

    1. Kexian Zhang & Yan Wang & Zimei Huang, 2021. "Do the Green Credit Guidelines Affect Renewable Energy Investment? Empirical Research from China," Sustainability, MDPI, vol. 13(16), pages 1-18, August.
    2. Veronika Kajurova & Dagmar Linnertova, 2018. "The Impact of Loose Monetary Policy on the Competitiveness of Czech Firms," ACTA VSFS, University of Finance and Administration, vol. 12(1), pages 43-73.

    More about this item

    Keywords

    External finance; Credit channel; Monetary transmission; GMM;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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