Template-type: ReDIF-Paper 1.0
Author-Name: Dr. Gregor Bäurle
Author-Name-First: Gregor
Author-Name-Last: Bäurle
Author-Person: pba511
Author-Name: Sarah M. Lein
Author-Name-First: Sarah M.
Author-Name-Last: Lein
Author-Person: pru69
Author-Name: Elizabeth Steiner
Author-Name-First: Elizabeth
Author-Name-Last: Steiner
Author-Person: pst643
Title: Firm net worth, external finance premia and monitoring cost - estimates based on firm-level data
Abstract: Based on a large panel of balance sheets and income statements of Swiss nonfinancial firms from 1998 to 2016, we estimate the sensitivity of the cost of external finance to firm net worth using exogenous variation in net worth. We find that firm net worth is inversely related to the external finance premium, consistent with models featuring financial frictions as in Bernanke, Gertler, and Gilchrist (1999). Through the lens of their costly state verification setup, we provide a range for the monitoring cost implied by our estimated sensitivity of the cost of external finance to net worth. Our implied estimate of the monitoring cost ranges between 15 and 20 percent, consistent with an economically significant financial friction.
Length: 36 pages
Creation-Date: 2022
Contact-Email: forschung@snb.ch
File-URL: https://www.snb.ch/en/publications/research/working-papers/2022/working_paper_2022_07
File-Format: text/html
Number: 2022-07
Classification-JEL: E32, E22, E44
Keywords: External finance premium, net worth, firm-level balance sheet data, costly state verification
Handle: RePEc:snb:snbwpa:2022-07