Heterogeneous effects of macroprudential policies on firm leverage and value

Abstract

We empirically investigate the effect of financial institution-targeted macroprudential policies on firms using a comprehensive macroprudential policy dataset and corporate panel data across 35 countries. We find that tightening of macroprudential measures persistently curbs the leverage of firms, while loosening is related to the increase in leverage. We also find that this effect on leverage is heterogeneous across firms, as net macroprudential policy actions reduce the procyclicality of leverage more significantly for small firms and firms with high leverage. Also, we estimate the effect of macroprudential policies on firm value to evaluate potential policy trade-offs as the policies restrict the firms' access to credit during economic booms while protecting them from future financial crises. The effect of macroprudential policies on firm value is generally positive despite the policies' restrictive nature. Further, the effect on firm value is heterogeneous depending on firm characteristics: the positive effect becomes stronger as firms are less leveraged, but this positive effect is weaker for firms that grow faster, suggesting potential costs of macroprudential policies for these firms.