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Heterogeneous Effects of Macroprudential Policies on Firm Leverage and Value

Author

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  • Hyunduk Suh

    (Inha University)

  • Jin Young Yang

    (Zayed University)

Abstract

We empirically investigate the effect of financial institution-targeted macroprudential policies on firms, using a comprehensive macroprudential policy dataset and corporate panel data across 29 countries. We find that the tightening of macroprudential measures persistently curbs the leverage of firms, while loosening is related to the increase in leverage. We also find that this effect on leverage is heterogeneous across firms, as net macroprudential policy actions reduce the procyclicality of leverage more significantly for small firms and firms with high leverage. Also, we estimate the effect of macroprudential policies on firm value to evaluate potential policy trade-offs as the policies restrict the firms' access to credit during economic booms while protecting them from future financial crises. The effect of macroprudential policies on firm value is generally positive despite the policies' restrictive nature. Further, the effect on firm value is heterogeneous depending on firm characteristics: the positive effect becomes stronger as firms are less leveraged; but this positive effect is weaker for firms that grow faster, suggesting potential costs of macroprudential policies for these firms.

Suggested Citation

  • Hyunduk Suh & Jin Young Yang, 2021. "Heterogeneous Effects of Macroprudential Policies on Firm Leverage and Value," Inha University IBER Working Paper Series 2021-3, Inha University, Institute of Business and Economic Research.
    • Handle: RePEc:inh:wpaper:2021-3
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    1. Mengtao Chen & Haojie Zhu & Yongming Sun & Ruoxi Jin, 2023. "The impact of housing macroprudential policy on firm innovation: empirical evidence from China," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-11, December.

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    More about this item

    Keywords

    Macroprudential policy; Firm heterogeneity; Leverage; Tobin’s Q;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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