How and why do small firms manage interest rate risk? |
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Authors: | James Vickery |
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Institution: | 1. Banking Studies, Federal Reserve Bank of New York, 33 Liberty Street, New York, NY 10045, USA |
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Abstract: | Although small firms are particularly sensitive to interest rates and other shocks, empirical work on corporate risk management has focused instead on large public companies. This paper studies fixed-rate and adjustable-rate loans to see how small firms manage their exposure to interest rate risk. Credit-constrained firms are found to match significantly more often with fixed-rate loans, consistent with prior research that shows the supply of credit shrinks during periods of rising interest rates. Banks originate a higher share of adjustable-rate loans than other lenders, ameliorating maturity mismatch and exposure to the lending channel of monetary policy. Time-series patterns in the fixed-rate share are consistent with recent evidence on debt market timing. |
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Keywords: | G21 G30 G32 |
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