Corporate Access to External Financing

Access to external finance, such as bank loans or trade credit, is a key determinant of a firm’s ability to develop, operate, and expand. Economic researchers have studied how various macroeconomic and microeconomic factors influence such access; for example, it has been shown to depend on the macroeconomic environment, since economic downturns tend to limit firms’ ability to borrow and banks’ willingness to lend.This “credit channel” research argues that corporate access to credit is the principal mechanism linking monetary policy and the real economy.At the micro level, research has shown that characteristics specific to a firm influence the degree to which macroeconomic changes affect its access to external financing; specifically, firms that are more vulnerable financially—such as smaller, younger, riskier, and more indebted firms—are found to be more affected by tighter monetary policy.