Working Paper: CEPR ID: DP14659
Authors: Olivier Darmouni; Oliver Giesecke; Alexander Rodnyansky
Abstract: The share of firms’ borrowing from bond markets has been rising globally, and notably in the Eurozone. How does debt structure affect the transmission of monetary policy? We present a high-frequency framework that combines identified monetary shocks with a cross-sectional firm-level stock price reaction. Firms with more bonds are disproportionately affected by surprise monetary actions relative to other firms in the Eurozone. This finding stands in contrast to the predictions of a standard bank lending channel and points toward bond financing not being a frictionless "spare tire."
Keywords: monetary policy; corporate bonds; banking relationships; corporate finance; financial distress
JEL Codes: E44; E52; G21; G23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| larger share of bond debt (H74) | more significantly affected by monetary policy shocks (E39) |
| monetary policy changes (E52) | financial constraints (H60) |
| debt structure (G32) | firm responses to monetary policy (E52) |
| presence of frictions in bond financing (G32) | monetary policy transmission to firms (E52) |
| interest rates increase (E43) | stock return decrease for firms with less bond debt (G32) |