The paper empirically studies whether the liquidity of Italian companies, which in recent years has reached very high levels, affects the supply of bank loans and the transmission of monetary policy. From a theoretical point of view, it is not clear that more liquid companies enjoy better access to credit, as ample liquidity can reveal both positive (e.g. high profitability) and negative (e.g. greater shock exposure) information on the firm.
The results indicate that banks look favourably on the liquidity held by their borrowers. In fact, liquidity is associated with the granting of less expensive loans, in terms of both interest rates and commissions, and a larger share of long-term and unsecured loans. Furthermore, greater liquidity is linked to a lower transmission of short-term policy rate hikes due to monetary policy choices.
