Macroeconomics Seminar Series - Nic Kozeniauskas (Bank of Portugal)

Title: Beyond Risk: Firm Financing and Interest Rates

Abstract: Firm financing is a central component of modern macroeconomic theory, yet the empirical determinants of interest rates are not well understood. We study these using a novel loan-level dataset. Interest rates vary substantially across firms, even on observationally equivalent loans. Default risk—the core source of dispersion in standard models—can only account for 15% of variation. Bank heterogeneity and relationship banking have similarly limited explanatory power. Instead, most dispersion reflects persistent idiosyncratic firm-level heterogeneity—accounting for 27% of variation—that cannot be explained by observable firm characteristics. Our findings suggest that there are substantial frictions in credit markets outside existing frameworks.