Bank Loans, Public Debt Offerings, and Corporate Cash Distribution after the 2008 Financial Crisis
62 Pages Posted: 9 Jul 2019
Date Written: March 1, 2019
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
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