2020
DOI: 10.2139/ssrn.3593760
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Quantitative Easing, Investment, and Safe Assets: The Corporate-Bond Lending Channel

Abstract: We show that Quantitative Easing (QE) stimulates investment via a corporate-bond lending channel. Fed's large-scale asset purchases of MBS and treasuries through QE creates a vacuum of safe assets, prompting safer firms to invest more by issuing relatively "safe" bonds. Using micro-data around QE, we find that QE increases firm-level investment by 7.4 percentage points for firms with bond market access. This growth is financed with senior bonds. We find no evidence of higher shareholders' payouts associated to… Show more

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Cited by 12 publications
(14 citation statements)
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“…Economic policy uncertainty not only affects the profitability of firms but also hampers corporate investment decisions (Baker et al 2016;Gulen and Ion 2016). Specifically, it affects the decisions to meet their capital requirements (Giambona et al 2020). The financial flexibility to raise capital using alternative methods, such as bank loans, bonds, and equity has associated costs.…”
Section: Literature Review and Hypotheses Developmentmentioning
confidence: 99%
See 1 more Smart Citation
“…Economic policy uncertainty not only affects the profitability of firms but also hampers corporate investment decisions (Baker et al 2016;Gulen and Ion 2016). Specifically, it affects the decisions to meet their capital requirements (Giambona et al 2020). The financial flexibility to raise capital using alternative methods, such as bank loans, bonds, and equity has associated costs.…”
Section: Literature Review and Hypotheses Developmentmentioning
confidence: 99%
“…Corporate finance literature offers several explanations about firms' decision to raise capital and their choice of financing instruments (Haddad and Lotfaliei 2019;Nagar et al 2019;Baker and Wurgler 2002;Myers and Majluf 1984;Jensen and Meckling 1976;Modigliani and Miller 1958;Ross 1977). 2 However, the intervention of central banks during economic crises 3 through quantitative easing and asset purchase programs and shifts in ownership structure of US firms 4 has altered funding mechanisms and influenced risk-averse firms' choice of financial instrument toward relatively "safe" bonds and leverage (Giambona et al 2020;Kurtzman and Zeke 2017).…”
Section: Introductionmentioning
confidence: 99%
“…To illustrate, Gambetti and Musso (2017) provide evidence that QE in the euro zone has had a significant upward effect on real GPD, which could have had a beneficial effect on share prices. In related papers, Luck and Zimmermann (2020) provide evidence of an employment effect of QE in the US, while Giambona, Matta, Peydro and Wang (2020) find an investment effect of QE also in the US, consistent with improved prospects for firms stemming from QE. This paper's focus on the impact of the PEPP on equity prices and CDS spreads is warranted, as it provides new insights into QE as a monetary tool to improve financial conditions for firms at a time of economic crisis.…”
Section: Introductionmentioning
confidence: 83%
“…Arrata et al, 2017). A related paper is Giambona, Matta, Peydró, and Wang (2020), who find that QE, by creating a vacuum of safe assets, allowed corporations to issue more bonds, ultimately spurring on investment. I show that through the impact on repo rates, there is a distinct transmission channel to bank lending, as asset purchases affect repo rates and hence bank funding costs.…”
Section: Introductionmentioning
confidence: 99%