Bank Loans, Public Debt Offerings, and Corporate Cash Distribution after the 2008 Financial Crisis

62 Pages Posted: 9 Jul 2019

See all articles by Hsuan‐Chi Chen

Hsuan‐Chi Chen

University of New Mexico - Anderson School of Management

Robin K. Chou

National Chengchi University

Chih-Yung Lin

National Chiao-Tung University

Chien-Lin Lu

National Chengchi University (NCCU)

Date Written: March 1, 2019

Abstract

We examine the effect of quantitative easing on the supply of bank loans and the issuance of corporate debts. During quantitative easing, lending banks demand significantly lower loan spreads, offer longer loan maturities, provide larger loans, and loosen covenants on firms whose long-term bond rating is lower than BBB, while bond investors do not loosen the requirement for riskier borrowers concurrently. Furthermore, we find that cash holdings obtained from debt financing decrease a firm’s value and increase its default risk when loan costs are relatively low. The results indicate that banks take greater risk during quantitative easing by relaxing lending standards to relatively riskier borrowers.

Keywords: Quantitative easing; Bank loans; Corporate debts; Cash holdings; Firm value

JEL Classification: E58; G12; G21; G32

Suggested Citation

Chen, Hsuan-Chi and Chou, Robin K. and Lin, Chih-Yung and Lu, Chien-Lin, Bank Loans, Public Debt Offerings, and Corporate Cash Distribution after the 2008 Financial Crisis (March 1, 2019). Available at SSRN: https://ssrn.com/abstract=3416027 or http://dx.doi.org/10.2139/ssrn.3416027

Hsuan-Chi Chen

University of New Mexico - Anderson School of Management ( email )

1924 Las Lomas NE
Albuquerque, NM 87131
United States

HOME PAGE: http://www.mgt.unm.edu/faculty/directoryArea.asp#FIN

Robin K. Chou

National Chengchi University ( email )

No. 64, Chih-Nan Road
Section 2
Wenshan, Taipei, 11623
Taiwan
+886-2-29393091 ext. 81016 (Phone)

Chih-Yung Lin (Contact Author)

National Chiao-Tung University ( email )

Taiwan

Chien-Lin Lu

National Chengchi University (NCCU) ( email )

No. 64, Chih-Nan Road
Section 2
Wenshan, Taipei, 11623
Taiwan

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