Transmission of Monetary Policy Impulses to a Firm’s Profitability: An Empirical Analysis of Manufacturing Firms

Abstract

ABSTRACT The study aims to examine the evidence of transmission of monetary policy impulses to a firm’s profitability and highlights that short-term financing decision fails to enhance the profitability of the firms during tight monetary policy except for the firms with high quantile of profitability. During tight monetary policy, the profitability of firms from median quantiles of profitability and above is negatively impacted. After incorporating price-cost margin, we find that the short-term financing decisions of high price-cost margin firms are hardly responsive to monetary policy. However, for long-term financing, firms with high mark-up and high profitability support profitability positively.