Crowding Out Bank Loans: Liquidity-Driven Bond Issuance

53 Pages Posted: 8 Oct 2020 Last revised: 15 Apr 2021

See all articles by Olivier Darmouni

Olivier Darmouni

Columbia University - Columbia Business School

Kerry Siani

Columbia University - Columbia Business School

Date Written: April 14, 2021

Abstract

Using corporate balance sheets data following the COVID-19 shock, we provide evidence that the bond market is central to firms' access to liquidity. Contrary to good times, bond issuers increased holdings of liquid assets rather than real investment. Moreover, even though the crisis did not originate in the banking sector, bonds were revealed-preferred to bank loans: many issuers left their bank credit lines untouched, while others used bond proceeds to repay existing bank loans. This liquidity-driven bond issuance implies that while the Federal Reserve intervention revitalized markets, its net effect on firms and the real sector was likely smaller than initially thought.

Keywords: Corporate bonds, liquidity crises, unconventional monetary policy, COVID-19

JEL Classification: G23, E44, G32, E52

Suggested Citation

Darmouni, Olivier and Siani, Kerry, Crowding Out Bank Loans: Liquidity-Driven Bond Issuance (April 14, 2021). Available at SSRN: https://ssrn.com/abstract=3693282 or http://dx.doi.org/10.2139/ssrn.3693282

Olivier Darmouni (Contact Author)

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Kerry Siani

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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