Unconventional monetary policy and corporate bond issuance

Abstract

We assess the e¤ect and the timing of the corporate arm of the ECB quantitative easing (CSPP) on corporate bond issuance. Because of several contemporaneous measures, to isolate the programme e¤ects we rely on one key eligibility feature: the euro denomination of newly issued bonds. We …nd that the signi…cant increase in bonds issuance by eligible …rms is due to the CSPP and that this e¤ect took at least six months to unfold. This result holds even when comparing …rms with similar ratings, thus providing evidence that unconventional monetary policy can foster a …nancing diversi…cation regardless of …rms' risk pro…le. We also highlight the impact of the programme on the real economic activity. The evidence suggests that while all …rms increased investment in capital expenditures and intangible assets, the CSPP induced eligible …rms to invest in marketable and equity securities, to repurchase their own stocks, to hold cash and to carry out short-term investment.

The Rise of Bond Financing in Europe

“…bankruptcy reform [Becker and Josephson, 2016], and loose monetary policy and quantitative easing [Grosse-Rueschkamp et al, 2019, De Santis and Zaghini, 2019, Pegoraro and Montagna, 2021. 4 Relative to these works, this paper takes a more holistic view of bond issuance in the Euro Area over a longer time frame.…”

Monetary Policy and Corporate Debt Structure*

“…Some recent papers show that unconventional monetary easing contributed to increase in corporate bond issuance (e.g. Lo Duca, Nicoletti and Vidal Martínez, 2016; Foley‐Fisher, Ramcharan and Yu, 2016; De Santis and Zaghini, 2019). This increase in bonds issuance is consistent with the portfolio rebalancing channel of central bank asset purchases, where the investors shift some of their portfolios into other assets, such as corporate bonds, thus reducing their yields (e.g.…”

The CSPP impact on non-financial firms’ cost of borrowing and debt choice

“…This shift from bank to bond financing, which tends to be stronger for larger firms, allows banks to extend credit to firms that are not able to issue bonds, which are typically smaller. 6 According to De Santis and Zaghini (2021) and Todorov (2020), changes in financing patterns also include a shift from bond placements in other currencies to euro-denominated debt, a more pronounced effect for firms issuing eligible bonds.…”