The Rise of Bond Financing in Europe
63 Pages Posted: 8 Feb 2021 Last revised: 1 Jun 2021
Date Written: December 13, 2020
Using large panel data of public and private firms, this paper dissects the aggregate growth of bond financing in the Euro Area. It considerably broadened firms' access to funding, but can also lead to new risks. The composition of bond issuers has shifted, with the entry of many smaller and riskier issuers in recent years. New issuers invest and grow, leading to higher leverage and interest rates. Moreover, holdings of stable `buy-and-hold' bond investors are large in aggregate but small for weaker issuers. Finally, the majority of firms downgraded in the 2020 crisis were small private firms that recently entered the bond market.
Keywords: Corporate bond market, debt structure, disintermediation, ECB, monetary policy, quantitative easing, bond investors
JEL Classification: G21, G32, E44
Suggested Citation: Suggested Citation