Working Paper: CEPR ID: DP17191
Authors: Olivier Darmouni; Kerry Siani
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; E44; G32; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Bond issuance (H74) | Accumulation of liquid assets (E21) |
| Accumulation of liquid assets (E21) | Decrease in investment in real assets (E22) |
| Bond issuance (H74) | High equity payouts (G35) |
| Bond issuance (H74) | Leaving credit lines untouched (G51) |
| Bond issuance (H74) | Repayment of existing loans (G51) |
| Federal Reserve intervention (E52) | Opportunistic issuance (G24) |
| Bond issuance (H74) | Changes in liquidity management dynamics (E41) |