The Real Effects of Forced Sales of Corporate Bonds

40 Pages Posted: 5 Aug 2019

See all articles by Hadiye Aslan

Hadiye Aslan

Georgia State University - Department of Finance

Praveen Kumar

University of Houston - Department of Finance

Date Written: May 1, 2018

Abstract

What are the real effects of forced sales of corporate securities? Our theoretical analysis shows that model uncertainty can generate distorted negative (positive) capital investment effects during price declines (reversals) in equilibrium when there is information feedback from financial markets. Empirically, we find that forced sales of corporate bonds by financial institutions had a significant negative impact on the capital investment and product market competitiveness --- measured by market shares and price-cost margins --- of exposed firms during the financial crisis. These adverse real effects on exposed firms were also vertically transmitted to their suppliers and customers.

Keywords: Forced Sales, Corporate Bonds, Subprime Mortgage Crisis, Capital Investment, Product Markets

JEL Classification: G11, G14, G22, G23

Suggested Citation

Aslan, Hadiye and Kumar, Praveen, The Real Effects of Forced Sales of Corporate Bonds (May 1, 2018). Journal of Monetary Economics 95, pp 1-17 . Available at SSRN: https://ssrn.com/abstract=3133769

Hadiye Aslan

Georgia State University - Department of Finance ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

Praveen Kumar (Contact Author)

University of Houston - Department of Finance ( email )

Houston, TX 77204
United States
713-743-4770 (Phone)
713-743-4789 (Fax)

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