Do Firms Cater to Corporate QE? Evidence from the Bank of Japan’s Massive Corporate Bond Purchases

Abstract

This paper documents a novel unintended effect of central bank corporate bond purchases. During the COVID-19 pandemic, the Federal Reserve and the Bank of Japan have conducted massive purchases of corporate bonds maturing in five years or less. This paper demonstrates that firms in Japan, but not in the U.S., have catered to the maturity-specific demand shock by shifting the maturity of new bond issues, plausibly due to the much larger size of the Bank of Japan’s purchases. Thus, this paper has important policy implications for central banks becoming significant buyers in non-government debt markets.

Keywords: Corporate bond purchase program, Debt maturity, Gap-filling, Pandemic

JEL Classification: E44, E58, G01, G32