Economic Resilience: The Role of Monetary Policy and Firm Characteristics in Corporate Investment

This study examines how monetary policy influences corporate investment in China, emphasising how firm characteristics shape heterogeneous investment responses. Using a panel of 5,440 firms from 2000 to 2024, we analyse how interest rates, inflation, and firm-level attributes—such as size, leverage, and liquidity—interact to determine capital expenditure decisions. The results show that both interest rates and inflation exert positive and significant effects on investment, reflecting structural features of China’s financial system and firms’ adaptive behaviour under macroeconomic fluctuations. Larger and more leveraged firms invest significantly more, while liquidity has a negative effect, suggesting precautionary savings motives. Subsample regressions reveal meaningful heterogeneity: large firms respond more strongly to interest rates, while small firms face internal financial constraints and show minimal responsiveness to inflation. These insights highlight the importance of firm-level characteristics in understanding monetary transmission and corporate resilience.