Monetary Policy Shocks, Financial Constraints and Firm-Level Equity Return: Panel Evidence

Zulkefly Abdul Karim, Mohd. Azlan Shah Zaidi, Bakri Abdul Karim

Abstract


ABSTRACT

The present paper investigates the effect of monetary policy shocks upon the equity returns of financially constrained and less-constrained firms in Malaysia for the 1990-2008 period using firm-level data. Monetary policy shocks are generated via a recursive structural VAR (SVAR) identification scheme that allows the monetary authority to set the overnight interbank rate after observing the current value of world oil price, foreign income, foreign monetary policy, domestic output and inflation. The Malaysian firms examined are divided into two categories based upon the cash flow to income ratio, namely financially constrained and financially less-constrained. After augmenting the Fama and French (1992, 1996) multifactor model using a dynamic panel data approach, the results reveal that equity returns of financially constrained firms are more affected by domestic monetary policy than the returns of less constrained firms. Meanwhile, international monetary policy shocks significantly influence the equity returns of financially less-constrained firms, but not those of financially constrained firms.

Keywords: Monetary policy; financial constraints; augmented Fama-French; dynamic panel data

ABSTRAK

Kertas ini mengkaji kesan kejutan dasar monetari ke atas pulangan ekuiti firma yang mempunyai kekangan kewangan dan kurang kekangan kewangan di Malaysia untuk tempoh 1990-2008 dengan menggunakan data pada peringkat firma. Kejutan dasar monetari dijana melalui skema pengenalpastian model rekursif VAR berstruktur yang mana membenarkan pihak berkuasa kewangan menentukan kadar bunga semalaman antara bank selepas membuat pemerhatian terhadap nilai semasa harga minyak dunia, pendapatan asing, dasar kewangan asing, output domestik dan inflasi. Firma juga telah diasingkan kepada dua kategori iaitu firma yang mengalami kekangan kewangan, dan firma yang kurang kekangan berasaskan kepada nisbah aliran tunai kepada pendapatan. Dengan menggunakan imbuhan terhadap model multi faktor Fama-French (1992, 1996) yang dianggar dengan kaedah data panel dinamik, keputusan kajian menunjukkan pulangan ekuiti firma yang mempunyai kekangan kewangan lebih dipengaruhi oleh dasar kewangan domestik berbanding firma yang kurang kekangan. Walau bagaimanapun, kejutan dasar kewangan antarabangsa secara signifikan mempengaruhi pulangan ekuiti firma yang mengalami kurang kekangan kewangan, tetapi tidak mempengaruhi firma yang mengalami kekangan kewangan.

Kata kunci : Dasar monetari; kekangan kewangan; imbuhan Fama-French; data panel dinamik


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