Monetary policy uncertainty and corporate investment: Is the investment behavior of energy firms more sensitive under financial constraints and heightened uncertainty?

Abstract

The purpose of this paper is provide the impact between tightening monetary policy and firm investment with financial constraints and world uncertainty as our moderators. We approach fixed effect model on the dataset taken from 735 nonfinancial Vietnamses listed firms, varying from 2010 – 2023 period. We employ several robustness checks, including alternative measurement of monetary policy uncertainty and firm investment while other econometric methods are generalized method of moments and two-stage least squares regressions. Our findings demonstrate that there is a negative effect of tightening monetary policy on firm investment. Moreover, the moderating role of financial constraints highlight that firms tend to depend more on internal funds to maintain their business during contractionary policy while tightening monetary policy impact is less effective under economic uncertainty. Especially, energy-intensive enterprises are more sensitive to monetary policy uncertainty compared to non energy-intensive enterprises in the context of both financial constraints and external shocks like world uncertainty. Finally, state-owned enterprises are less sensititve to monetary policy uncertainty compared to the other one due to soft budget constraint and government assistance. This research contribute to literature on monetary policy and corporate finance, offering insights for policymakers and firms to navigate economic environments instability