Negative Interest Rates, COVID-19, and the Finances of Listed Euro Firms

Abstract

Aim: The paper measures the impact of negative interest rates on listed firms in the original euro zone countries. It also measures the impact of the first COVID-19 year.
 Design / research methods: The paper uses panel data to measure the influence of the short-term ECB deposit rate and the 10-years German bond yield on short-term and long-term firm variables. Cross section fixed effects are applied to first differences and dummy variables. For liquidity and non-liquid assets the effects are also measured for small and large companies, for sectors, and for countries.
 Conclusions / findings: Corporate liquidity ratios and creditor ratios decline when short-term ECB-rates fall. If ECB rates are negative, liquidity ratios are further reduced by 0.6 percentage points. Declining long-term German government bond yields increase non-liquid assets, while negative yields boost these assets by 4.5% extra. In the first COVID-19 year, the investments in non-liquid assets were 7.6% smaller, while liquidity ratios increased by 2.3 percentage points.
 Originality / value of the article: Papers on the influence of negative interest rates and of COVID-19 on European firms are unavailable. This makes the paper relevant for firm managers and policy makers and a benchmark for future research.
 Implications of the research: Because the issues addressed are new, further research is valuable. One may think of comparable studies for different countries. Many other suggestions for further research are given in the conclusions.

Centralisation of cash management: still advisable?

“…Actually, one can reason that cash management would not matter in a perfect Modigliani and Miller world, but that Williamson-type of transaction cost economics considerations make that it does so. Actually, not just determining cash levels is a matter of tweaking (Von Eije, 2021;Gonenc et al, 2022), but just like 30 years ago and even before, broadly taken cost/benefit analyses do matter, supporting the idea of (de-) centralisation of corporate cash management as a matter of finetuning instead of pre-set conviction.…”

“…Management of cash and its equivalents in terms of readily liquid assets is by no means a trivial issue for many companies. In fact, what will be denoted as cash from now onwards often comprises more than 10% of their balance sheet totals (Von Eije, 2021). Being both a resource for making business as well as a residual outcome thereof, cash is much intertwined with the daily operations and beyond.…”