When Central Banks Buy Corporate Bonds: Target Selection and Impact of the European Corporate Sector Purchase Program

57 Pages Posted: 28 Dec 2017 Last revised: 6 May 2021

See all articles by Rients Galema

Rients Galema

Utrecht University - School of Economics

Stefano Lugo

Utrecht University - School of Economics

Date Written: April 24, 2021

Abstract

We study the timing of the European Corporate Sector Purchase Program and its direct effect on corporate financing decisions. Consistent with the goal of reducing credit premia, more timely purchases are observed for eligible bonds characterized by higher credit risk. Firms effectively targeted increase their relative use of market debt and the maturity of newly issued bonds more than eligible but not (yet) targeted issuers. The estimated effect is not driven by the verified relation between selection and credit risk. The program has fostered the ability to tap credit markets directly especially for eligible corporations whose bonds are actually purchased.

Keywords: Corporate Sector Purchase Program, Corporate Bonds, Central Bank Asset Purchases, Quantitative Easing, Corporate Debt

JEL Classification: G18, G28, G32

Suggested Citation

Galema, Rients and Lugo, Stefano, When Central Banks Buy Corporate Bonds: Target Selection and Impact of the European Corporate Sector Purchase Program (April 24, 2021). Journal of Financial Stability, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3091751 or http://dx.doi.org/10.2139/ssrn.3091751

Rients Galema (Contact Author)

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC
Netherlands

Stefano Lugo

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC
Netherlands

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