Seminar

Bond Market Stimulus: Firm-level Evidence from 2020-21

Olivier Darmouni (Columbia University)

March 18, 2022, 10:00–11:30

Toulouse

Room Auditorium 4

Finance Seminar

Abstract

Using micro-data on corporate balance sheets, we study firm behavior after the unprecedented policy support to corporate bond markets in 2020. As bond yields fell, firms issued bonds to accumulate large and persistent amounts of liquid assets instead of investing. Conceptually, the benefits depend on how highly bond issuers valued this liquidity at the margin. We show they generally had access to bank liquidity that they chose not to use: many issuers left their credit lines untouched, while others used bonds to repay existing loans. Moreover, equity payouts remained high: almost half of issuers still repurchased shares in Spring 2020.

Keywords

Corporate bonds; unconventional monetary policy; corporate liquidity;

JEL codes

  • G23: Non-bank Financial Institutions • Financial Instruments • Institutional Investors
  • E44: Financial Markets and the Macroeconomy
  • G32: Financing Policy • Financial Risk and Risk Management • Capital and Ownership Structure • Value of Firms • Goodwill
  • E52: Monetary Policy