Negative Interest Rates, COVID-19, and the Finances of Listed Euro Firms

23 Pages Posted: 20 Jul 2021

See all articles by J. Henk von Eije

J. Henk von Eije

University of Groningen - Faculty of Economics and Business

Date Written: July 13, 2021

Abstract

Negative interest rates are a new phenomenon. Short-term deposit rates of the European Central Banks became negative in 2014 and sovereign debts of highly solvent countries followed. This paper measures the effect of short-term rates on short-term financial variables and of long-term rates on structural variables of listed euro firms. I thereby test if negative rates have an additional effect. I find that liquidity ratios and creditors ratios significantly decline if short-term rates fall, while negative ECB rates reduce liquidity ratios by an additional 0.6 percentage points. Declining long-term German government bond yields increase non-liquid assets significantly, and negative yields per se increase these assets in addition by 4.5%. The latter positive effects arise from the southern-euro countries and Finland and France. For the first full COVID-19 year (2020), the investments in non-liquid assets were 7.6% smaller. This will have contributed to the fact that -despite the corona crisis- the liquidity ratios increased by 2.3 percentage points. Similar COVID-19 effects are also found for small and large firms, for different sectors, and in most of the euro countries.

Keywords: Negative interest rates, European Central Bank, German government bond yields, short-term firm financing, liquidity ratios, debtors ratios, creditor ratios, dividends, long-term borrowing cash flows, non-liquid investments, corona crisis, COVID-19

JEL Classification: E22, E31, E32, E58, G31, G35

Suggested Citation

von Eije, J. Henk, Negative Interest Rates, COVID-19, and the Finances of Listed Euro Firms (July 13, 2021). Available at SSRN: https://ssrn.com/abstract=3886064 or http://dx.doi.org/10.2139/ssrn.3886064

J. Henk Von Eije (Contact Author)

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
18
Abstract Views
89
PlumX Metrics