Monetary policy shocks and distressed firms' stock returns: Evidence from the publicly traded U.S. firms

- We estimate U.S. firms' stock-return sensitivities to monetary policy shocks.
- We investigate determinants of firm-level sensitivities to monetary policy shocks.
- Expansionary monetary shocks disproportionately increase distressed firms' returns.
- The distressed firm's profit is substantially smaller than its interest expense.
- Monetary loosening increases market values of firms in need of external financing.

We study U.S. firms' stock-return sensitivities to monetary policy shocks over the 2001-2015 period. Expansionary monetary shocks disproportionately increase returns of a distressed firm which has profit substantially smaller than its interest expense and is in need of external financing.