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How does unconventional monetary policy affect corporate capital structure and investment decisions? We study the transmission channel of quantitative easing and its potential diminishing returns on investment from a corporate finance perspective. Using a rich bank-firm matched data of Japanese firms with information on corporate debt and investment, we study how firms adjust their capital structure in response to the changes in term premia. Investment responds positively to a reduction in the term premium on average. However, there is a significant degree of cross-sectional variation in firm response: healthier firms increase capital spending and cash holdings, while financially vulnerable firms take advantage of lower long-term yields to refinance without increasing investment.

Accounting --- Banks and Banking --- Financial Risk Management --- Money and Monetary Policy --- Macroeconomics: Consumption, Saving, Production, Employment, and Investment: General (includes Measurement and Data) --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Corporate Finance and Governance: General --- Monetary Policy --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Public Administration --- Public Sector Accounting and Audits --- Interest Rates: Determination, Term Structure, and Effects --- Debt --- Debt Management --- Sovereign Debt --- Monetary economics --- Financial reporting, financial statements --- Finance --- Unconventional monetary policies --- Currencies --- Financial statements --- Yield curve --- Debt reduction --- Monetary policy --- Money --- Finance, Public --- Interest rates --- Debts, External --- Japan