Corporate Finance when Monetary Policy Tightens: How do Banks and Non-Banks Affect Access to Credit? (download PDF 211 Kb)

Paul Mizen and Cihan Yalcin

Abstract
The evolving financial environment facing the corporate sector provides many non-bank external finance options as an alternative to bank finance and this paper examines the relationship between UK firms' choices over bank versus non-bank finance under different monetary conditions. We look at the external finance 'mix' using a panel of 16,000 UK firm records taken from the FAME database for the years 1990 through 1999 taking into account firm-specific characteristics. The paper provides support for a credit channel by demonstrating evidence consistent with a bank lending channel, accelerator effects and a broad credit channel for small, risky and young firms that shows all types of lending are reduced for these groups when monetary policy tightens.