Paolo Surico, London Business School and CEPR
Abstract. We provide new evidence on the transmission of monetary policy to investment in the United States and the United Kingdom. Younger firms paying no dividends exhibit the largest and most significant change in capital expenditure, even after conditioning on size, leverage and liquidity. Older companies, in contrast, adjust their investment by much less. Only the borrowing of younger non-dividend payer declines significantly after a monetary policy tightening, as their net debt position is far more sensitive to asset price fluctuations. We find little evidence that other channels, such as heterogeneity in sales, earnings or interest payments, may explain our results. Younger companies paying no dividends account for the lion share of the aggregate investment response, consistent with a significant role for financial frictions in the transmission of monetary policy to firms.