Monetary Policy and Corporate Debt Maturity

80 Pages Posted: 19 Oct 2021 Last revised: 11 Mar 2024

See all articles by Andrea Fabiani

Andrea Fabiani

Bank of Italy

Janko Heineken

University of Bonn

Luigi Falasconi

University of Pennsylvania

Date Written: March 10, 2024

Abstract

We show that a policy rate cut lengthens corporate debt maturity. A 1 standard
deviation (10 basis points) interest rate cut raises the share of long-term debt by
87 basis points, explaining 20% of its variation. In the cross-section, large and
bond-issuing firms drive this adjustment. We provide a theory to rationalize
these findings. A policy rate cut increases demand for long-term bonds due
to reach for yield. Financial frictions allow only large, unconstrained firms to
benefit by refinancing at lower yields. Empirical evidence on corporate bond
issuance and insurer debt security holdings supports our proposed mechanism.

Keywords: Monetary Policy, Corporate Debt, Maturity, Reach for yield, Financial Frictions

JEL Classification: E44, E52, G20, G21, G23, G30, G32

Suggested Citation

Fabiani, Andrea and Heineken, Janko and Falasconi, Luigi, Monetary Policy and Corporate Debt Maturity (March 10, 2024). Available at SSRN: https://ssrn.com/abstract=3945615 or http://dx.doi.org/10.2139/ssrn.3945615

Andrea Fabiani (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Janko Heineken

University of Bonn ( email )

Bonn
Germany

Luigi Falasconi

University of Pennsylvania ( email )

Philadelphia, PA 19104
United States

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