Monetary Policy, Investment Efficiency and Equity Value
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| Title | Monetary Policy, Investment Efficiency and Equity Value
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| Author | Jin Qinglu and Kong Xiang |
| Organization | School of Accountancy and the Institute of Accounting and Finance, Shanghai University of Finance and Economics |
| Email | acjql@mail.shufe.edu.cn; |
| Key Words | Monetary Policy; Financing Constraints; Capital-Follow- Profitability; Investment Efficiency; Equity Value |
| Abstract | Using quarterly data of family firms from 2003 to 2009, this paper investigates how monetary policy influences the financing constraints and managerial investment flexibility, and then examines how monetary policy affects the investment efficiency and equity value. We find that loose monetary policy reduces the company's financing constraints and managerial investment flexibility. In addition, we find that the matching between monetary policy and a company’s profitability opportunity will promote the investment efficiency, and mismatch will result in inefficient investments. Finally, we observe that the loose monetary policy increases the equity value of growth options for high-profitability firms, and the tight monetary policy increases the equity value of put options for low-profitability firms. This paper will be helpful for understanding the economic rule of capital-follow-profitability under different government intervention. Meanwhile, from the perspective of investment, this study will be helpful to evaluate the impacts of macroeconomic policy on the microeconomic entities, and then help the government develop appropriate economic policies to promote the good functioning of macroeconomic system. |
| Serial Number | WP142 |
| Time | 2011-10-28 |
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