The purpose of this paper is to examine the evidence for credit channel on the composition of corporate finance during tight and loose periods of monetary policy, using micro‐level data on Indian firms for 1995‐2007.
Univariate tests as well as panel regression techniques were employed to examine the response of firms to monetary policy.
The findings provide evidence in favor of the relationship lending view, although the magnitude and extent of the response varies according to firm characteristics.
The paper belongs to the strand of literature which examines the impact of monetary policy on corporate behavior, an under‐researched aspect of study in the Indian context.
This paper is believed to be one of the first to examine this issue in a comprehensive fashion in relation to India.
