DP17191 Bond Market Stimulus: Firm-Level Evidence from 2020-21

Author(s): Olivier Darmouni, Kerry Siani
Publication Date: April 2022
Keyword(s): corporate bonds, Corporate liquidity, Unconventional Monetary Policy
JEL(s):
Programme Areas: Financial Economics, Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=17191

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.