DP15224 Which firms benefit from corporate QE during the COVID-19 crisis? The case of the ECB's Pandemic Emergency Purchase Program

Author(s): Asli Demirguc-Kunt, Balint Horvath, Harry Huizinga
Publication Date: August 2020
Date Revised: September 2020
Keyword(s): Equity returns, Pandemic, Quantitative easing
JEL(s): E52, G14
Programme Areas: International Macroeconomics and Finance
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15224

Using an event study methodology, this paper examines how European firms have been affected by the announcement of the Pandemic Emergency Purchase Program (PEPP) of the ECB. Firms with an investment-grade rating benefit relatively more as evidenced by higher share prices and lower CDS spreads, which reflects that the ECB is restricted to purchasing investment-grade corporate debt securities. The gains to shareholders relative to the total gains of shareholders and debtholders are negatively related to firm leverage, consistent with the existence of debt overhang. Firms more heavily impacted by the pandemic benefit relatively little from the PEPP, which could reflect that the business models of some of these firms are heavily damaged by the pandemic. Monetary policy in the form of the PEPP and national fiscal responses to the pandemic are shown to be complements in the sense that a strong pre-PEPP fiscal response enhances the potential for the PEPP to positively affect equity and debt valuations.