Torje Hegna, Department of Economics, UiO. "How do Firms Respond to Cash Windfalls?"
UPDATED. Department seminar. Torje Hegna is a Doctoral Research Fellow at the Department of Economics, UiO. He will present the paper: "How do Firms Respond to Cash Windfalls?"
I study how firms respond to cash windfalls following monetary policy shocks. Using detailed firm-bank loan data on Norwegian firms, I identify whether firms have fixed or floating interest rate loans. This allows me to develop a novel empirical design and estimate the cash flow effect from monetary policy shocks. Following a positive monetary policy shock, I find clear evidence of a cash flow effect from lower interest rates and reduced financial costs. However, this does not translate into an effect on investments. Instead, firms increase both their cash holdings and dividend payouts. The results of this paper suggest that the cash flow channel of monetary policy have little or no effect on investments.