Global Demand Spillovers in Corporate Bond Issuance: The Effect of Underwriter Networks
43 Pages Posted: 13 Jan 2020 Last revised: 4 Mar 2020
Date Written: December 30, 2019
This paper studies how monetary policy shocks propagate across borders through bond issuance networks of firms, underwriters and investors. Using a difference-in-differences strategy, I find that the European Central Bank's quantitative easing program in 2016 spilled over to the U.S. corporate bond issuance market via an underwriting channel. U.S. firms connected to underwriters with more Eurozone investor clients faced greater orders for their bonds, achieved a lower cost of capital, and ended up issuing more bonds. The underlying mechanism is likely driven by costly search that underwriters face in locating potential investors, which incentivizes maintaining investor relationships for repeated business. As such, investor demand shocks transmitted through underwriters affect issuers heterogeneously based on preexisting issuer-underwriter-investor networks.
Keywords: Unconventional monetary policy, quantitative easing, securities underwriting, corporate bonds
JEL Classification: G24, G15, E52, E44
Suggested Citation: Suggested Citation