The impact of negative interest rates on a firm’s financing costs

• Autor(a) principal: Pires, Luís Gonçalo Baptista
• Data de Publicação: 2019
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10071/19698
• topic: Negative interest rates; Financing costs; Portuguese firms; Monetary policies; Taxas de juro negativas; Custos de financiamento; Empresas portuguesas; Política monetária; Gestão financeira; Taxa de juro; Financiamento; Custos -- Costs; Trabalho de projeto; Portugal

In this project we want to find out to what extent the adoption of negative interest rates (specifically the Deposit Facility Rate) by the European Central Bank has affected the financing costs of a non-financial firm, providing a real example. We compute two different interest rates – one contracted with the bank (theoretical) and one resulting from the balance sheet and income statement (practical), the former representing what the firm expects to pay over the loan, and the latter encompassing the indirect costs of borrowing – and compare them between periods. We set the break between periods on June 2014, when the European Central Bank cut its Deposit Facility Rate into negative grounds, and find that the contracted interest rate dropped, and the overall interest rate increased, with the increase being caused not only by an increase in risk exposure, but also by a generalized increase in taxes, commissions and fees.