Bond Market Stimulus: Firm-Level Evidence from 2020-21
56 Pages Posted: 8 Oct 2020 Last revised: 10 Jan 2022
Date Written: January 7, 2022
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, this could nevertheless be beneficial, as long as bond issuers valued this liquidity highly. However, these firms generally had access to bank liquidity that they chose not to use: many issuers left their credit lines untouched, while others used bond proceeds to repay existing loans. Moreover, equity payouts remained high: over 40% of issuers repurchased shares in Spring 2020.
Keywords: Corporate bonds, unconventional monetary policy, corporate liquidity
JEL Classification: G23, E44, G32, E52
Suggested Citation: Suggested Citation