How does monetary policy affect corporate investment? This paper argues that the answer depends on how much firms rely on intermediated debt (loans), as opposed to arm’s length debt (bonds.) I study a model in which firms choose investment and the debt mix by trading off higher loan flexibility with the lower cost of bonds. Borrowing among bank-dependent firms responds less to monetary shocks than among bond-financed firms, while investment responds more. Moreover, bank-dependent firms tend to increase their reliance on banks following a tightening. I provide firm-level evidence consistent with these predictions. I also use the model to study how monetary pass-through changes as firms become less reliant on intermediated debt, as they appear to have in the data.