Exorbitant Privilege? Quantitative Easing and the Bond Market Subsidy of Prospective Fallen Angels /
We document capital misallocation in the U.S. investment-grade (IG) corporate bond market, driven by quantitative easing (QE). Prospective fallen angels--risky firms just above the IG cutoff--enjoyed subsidized bond financing in 2009-19. This effect is driven by prolonged cumulative Fed purchases of...
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- Englisch
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Cambridge, Mass.
National Bureau of Economic Research
2022.
- Zusammenfassung:
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We document capital misallocation in the U.S. investment-grade (IG) corporate bond market, driven by quantitative easing (QE). Prospective fallen angels--risky firms just above the IG cutoff--enjoyed subsidized bond financing in 2009-19. This effect is driven by prolonged cumulative Fed purchases of securities inducing long-duration IG-focused investors to rebalance their portfolios towards higher-yielding IG bonds. The benefiting firms (i) exploited the sluggish downward adjustment of credit ratings after M&A to finance risky acquisitions with bond issuances, (ii) increased market share affecting competitors' employment and investment, but (iii) suffered severe downgrades at the onset of the pandemic.
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- 1 online resource: illustrations (black and white);
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- February 2022.
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