This paper investigates the transmission mechanism of monetary policy in Brazil. It is an empirical analysis of the effects of monetary policy on the behavior of firms in Brazil. We build an original database composed of financial statements of 291 public firms and of 4,735 private firms. We use the balance sheet theory to investigate how firms respond to monetary contractions. Our results show that small firms are more sensitive to monetary contractions than large firms.This paper investigates the transmission mechanism of monetary policy in Brazil. It is an empirical analysis of the effects of monetary policy on the behavior of firms in Brazil. We build an original database composed of financial statements of 291 public firms and of 4,735 private firms. We use the balance sheet theory to investigate how firms respond to monetary contractions. Our results show that small firms are more sensitive to monetary contractions than large firms.