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The Effects of Unconventional Monetary Policy on Firm Capital Structure

Jun Takahashi

Pareto Undergraduate Journal of New Economists

Vol. 1 No. 5, Issue 2023

pp. 56 - pp. 85


This study investigates the effects of unconventional monetary policy on firms’ financing decisions using techniques drawn from corporate finance and monetary economics. The data set utilized contains 9,220 firms in 40 countries and 22 sectors from 1998 to 2018. The data is analysed through a variety of techniques including feasible generalized least squares with fixed effects with the Prais-Winsten estimator, reduced vector autoregression, and structural vector autoregression. This research determines that the effects of unconventional monetary policy on capital structure can vary amongst different groups. However, it also finds that most capital structure theories are applicable during periods of unconventional monetary policy. In addition, this work reveals that monetary policy transmission mechanisms differ across conventional and unconventional monetary policy schemes. Unconventional monetary policy most significantly impacts leverage ratios for large private enterprises and has spillover effects globally. The cross-country, cross-sector, cross-firm-type, and cross-firm-size variations suggest that there are group specific factors that determine the impacts of unconventional monetary policy on firm capital structure.

Jun Takahashi holds an Honours Bachelor of Science in Financial Economics from the University of Toronto, having graduated in 2019. He is an industry professional specializing in fixed income and structured financial products. His research interests are focused on the role of monetary policy, especially unconventional monetary policy and its effects on corporate finance and economic growth.  His paper titled “The Effects of Unconventional Monetary Policy on Firm Capital Structure” was written and submitted to complete a final year reading course in Economics.  Work on the paper helped inspire Jun to continue his research in finance and pursue a career in financial markets.  Jun gives special thanks to his reading course advisors, Professor Xu Tian and Professor Nicholas Zammit for their extensive support, guidance, and encouragement.

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