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- 8/2026 Presentation at EFA in Ghent, Belgium
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- 6/2025 Presentation at WFA in UT
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Abstract
We show that financially constrained firms that rely on equity at the margin endure larger stock-price declines and deeper cuts in capital expenditures, R&D, and patenting after contractionary monetary policy shocks. We explain these findings with a model where equity and debt markets are partially segmented and contractionary shocks raise the cost of equity more than debt. Price-sensitive investors withdraw from the equity market after tightening, and amplification concentrates in constrained firms with greater ex-ante ownership by price-sensitive investors. Our findings suggest that equity frictions are central to understanding the transmission of monetary policy to the corporate sector.
Amplification of equity financing constraint
