Which Firms Benefit from Corporate QE during the COVID-19 Crisis? the Case of the ECB’s Pandemic Emergency Purchase Program

CentER Discussion Paper Series Nr. 2020-022

54 Pages Posted: 1 Sep 2020 Last revised: 10 Sep 2020

See all articles by Asli Demirgüç-Kunt

Asli Demirgüç-Kunt

World Bank

Bálint L. Horváth

University of Bristol

Harry Huizinga

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR)

Date Written: August 31, 2020

Abstract

Using an event study methodology, this paper examines how European firms have been affected by the announcement of the Pandemic Emergency Purchase Program (PEPP) of the ECB. Firms with an investment-grade rating benefit relatively more as evidenced by higher share prices and lower CDS spreads, which reflects that the ECB is restricted to purchasing investment-grade corporate debt securities. The gains to shareholders relative to the total gains of shareholders and debtholders are negatively related to firm leverage, consistent with the existence of debt overhang. Firms more heavily impacted by the pandemic benefit relatively little from the PEPP, which could reflect that the business models of some of these firms are heavily damaged by the pandemic. Monetary policy in the form of the PEPP and national fiscal responses to the pandemic are shown to be complements in the sense that a strong pre-PEPP fiscal response enhances the potential for the PEPP to positively affect equity and debt valuations.

Keywords: Quantitative easing; Equity returns; Pandemic

JEL Classification: E52; G14

Suggested Citation

Demirgüç-Kunt, Asli and Horváth, Bálint L. and Huizinga, Harry, Which Firms Benefit from Corporate QE during the COVID-19 Crisis? the Case of the ECB’s Pandemic Emergency Purchase Program (August 31, 2020). CentER Discussion Paper Series Nr. 2020-022, Available at SSRN: https://ssrn.com/abstract=3683798 or http://dx.doi.org/10.2139/ssrn.3683798

Asli Demirgüç-Kunt (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Bálint L. Horváth

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

Harry Huizinga

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2623 (Phone)
+31 13 466 3042 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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