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Cutting Out the Middleman – The ECB as Corporate Bond Investor

57 Pages Posted: 19 Jun 2017 Last revised: 4 Nov 2017

Benjamin Grosse-Rueschkamp

ESMT European School of Management and Technology

Sascha Steffen

Frankfurt School of Finance & Management

Daniel Streitz

Copenhagen Business School

Date Written: November 3, 2017

Abstract

The European Central Bank’s Corporate Sector Purchase Programme (CSPP), launched in June 2016, increased the supply and lowered the cost of capital for eligible, i.e., investment grade, Eurozone firms through direct corporate bond purchases. We document a significant increase in bond debt for eligible firms. In particular eligible firms of lower credit quality change the composition of credit from bank-based to market-based financing, without affecting investment decisions. High credit quality firms increase payouts to shareholders and acquisition activity. Mergers announced by eligible firms after the introduction of the CSPP have lower announcement returns. Finally, we find evidence consistent with positive spillovers to firms that do not have access to bond financing. Banks with a high share of CSPP-eligible firms increase lending particularly to private but not public firms after introduction of the CSPP.

Keywords: Monetary policy, CSPP, ECB, financial constraints, bond debt, real effects

JEL Classification: G01, G21, G28

Suggested Citation

Grosse-Rueschkamp, Benjamin and Steffen, Sascha and Streitz, Daniel, Cutting Out the Middleman – The ECB as Corporate Bond Investor (November 3, 2017). Available at SSRN: https://ssrn.com/abstract=2988158

Benjamin Grosse-Rueschkamp

ESMT European School of Management and Technology ( email )

Schlossplatz 1
10117 Berlin
Germany

Sascha Steffen (Contact Author)

Frankfurt School of Finance & Management ( email )

Sonnemannstr. 9 -11
Frankfurt, 60314
Germany

HOME PAGE: http://www.sascha-steffen.de

Daniel Streitz

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

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