Imano, Dominique2014-02-052014-02-0520142014-02-05http://hdl.handle.net/10393/30576This research paper examines the impact of macroeconomic shocks on financially constrained firms using the size index as a financial constraint proxy. Quarterly Canadian business data is analyzed by means of OLS regressions, estimating the effects that the state of the economy, credit market conditions and monetary policy have on growth of business earnings and capital expenditures. The results suggest that state of the economy proxies (namely business production growth, the growth of the employment rate and the growth of wages) are mostly positively correlated with the aforementioned dependent variables. Similarly we find that monetary policy is a strong determinant of the aforementioned regressands. Surprisingly, the data indicates that tight credit market conditions (the growth rate of the prime corporate paper spread over the 3 month treasury bill and the growth of the chartered bank administrative rate spread over the 3 month treasury bill) are generally not statistically significant determinants of such firms’ financial performance and investment decisions.en