Monetary Policy, Bank Competition, and Corporate Investment

ABSTRACT This paper investigates the moderating role of bank competition in the link between monetary policy and corporate investment, using data from Vietnamese commercial banks and non‐financial listed firms from 2007 to 2023. After verifying the corporate investment channel of monetary policy, we show that higher bank competition enhances the effectiveness of monetary policy in driving corporate investment. Further analysis reveals that this effect is especially pronounced among bank‐dependent firms, which rely heavily on external financing from banks and thus respond more strongly to policy shifts in competitive banking markets. Besides, state‐owned firms, which benefit from government‐backed financial support, exhibit a weaker response to the combined effects of bank competition and monetary policy than private firms. Our results suggest that promoting a competitive banking sector could strengthen the impact of monetary policy on corporate investment, particularly for firms reliant on bank financing and non‐state‐owned firms.