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I construct a novel dataset comprising over 100,000 loan observations from U.S. firms and estimate that
renegotiating existing loans —rather than originating new loans —significantly contributes to the corporate investment response to monetary policy shocks, accounting for half of the aggregate effect. Expansionary monetary policy shocks increase bank credit predominantly through renegotiations, and in turn, firms that renegotiate boost investment the most. In contrast, originating new loans is driven by a firm’s investment growth prior to the shocks, consequently contributing to only a tenth of the overall investment response. Notably, renegotiations amplify investment responses for financially constrained firms.
