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.