The Rise of Market Financing in Europe: Evidence from New and Small Issuers

Abstract

Using newly available micro-data on public and private firms, this paper documents the rise of market financing in the euro area through the lens of new and small issuers. Recent new issuers of debt securities are typically small, private, and unrated. The spreads of small unrated issuers are comparable to high-yield bonds. Holdings of traditional "buy-and-hold" investors are small for unrated and smaller issuers, while non-bank intermediaries are large investors. However, these non-bank intermediaries were as stabilizing as insurers during the March 2020 turmoil. Nevertheless, the subsequent bond issuance wave was restricted to large and rated firms. The market for new issuers' debt thus more closely resembles "private debt" markets than the traditional bond market.

Keywords: Disintermediation, nonbank lending, financial fragility, private debt

JEL Classification: G21, G32, E44