This paper studies the environmental impact of unconventional monetary policy. Our theoretical framework is a multisector growth model with climate externalities and financial frictions. When central bank asset purchases have real effects on aggregate output, their sectoral composition typically affects the climate. Market neutrality of asset purchases does not follow from simple formulas used by policy makers, but depends on (i) the impact of central bank purchases on firms’ cost of capital and (ii) the share of capital funded by bonds. We use micro data on bond holdings, firm characteristics and emissions to show that the ECB’s corporate bond portfolio is tilted towards brown sectors relative to a market portfolio of sectoral capital stocks.
Using newly available micro-data on public and private firms, this paper documents five facts about the the rise of bond financing in the euro area through the lens of new and small issuers. (1) Recent new issuers are typically small, private, and unrated; (2) bond spreads of unrated issuers are around the investment-grade threshold; (3) holdings of traditional `buy-and-hold' bond investors are small for unrated and smaller issuers, while financial intermediaries and households are large investors; (4) during the March 2020 turmoil, financial intermediaries were as "safe hands" investors as insurers but households were as flighty as mutual funds; (5) the subsequent bond issuance wave was restricted to large firms, with other issuers returning to the loan market. These facts imply that these issuers are largely disconnected from the aggregate bond market and still significantly dependent on intermediaries.
Firm-bank relationships: A cross-country comparison, with Kamelia Kosekova, Angela Maddaloni, and Fabiano Schivardi
We document the structure of firm-bank relationships across eleven euro area countries and present new stylised facts using data from the Eurosystem credit registry - AnaCredit. We look at the number of banking relationships, reliance on the main bank, credit instruments, loan maturity, and interest rates. Firms in Southern Europe borrow from more banks and obtain a lower share of credit from the main bank than those in Northern Europe. They also tend to borrow more on short term, more expensive instruments and to obtain loans with shorter maturity. This is consistent with the hypothesis that firms in Southern Europe rely less on relationship banking and obtain credit less conducive to firm growth, in line with their smaller average size. Relationship lending does not translate in lower rates, possibly because banks appropriate part of the surplus generated by relationship lending through higher rates.
Heterogeneous Investors and Service Flows: Lessons from Corporate QE, with Felix Corell and Lira Mota
When choosing portfolio allocation, investors value not only cash flows of financial assets, but also service flows. Service flows reflect characteristics such as the ability to serve as a store of value, as collateral, or to meet mandatory capital and liquidity requirements. We present a model in which corporate QE can affect demand curves (and thus equilibrium bond prices) through both cash and service flows. Using data on prices and sectoral portfolio allocation in the Euro Area, we show that additional service flows attached to QE-eligible bonds are crucial in explaining the large price impact of the ECB's corporate QE announcement. Our model explains why even for bonds with similar cash flows, credit spreads of eligible bonds substantially decreased compared to ineligible bonds. Still, investors increased their demand of eligible bonds after controlling for other time-varying bond characteristics. We use the heterogeneity in portfolio rebalancing across investors to unveil the nature of eligibility service flows.
Borrowing Beyond Bounds: Credit Conditions for Large Bank Clients, with Felix Corell
Banks in the euro area must inform banking supervisors about exposures to individual counterparties that exceed 10% of the bank's capital. Using a new granular dataset that combines banks' loan and security exposures, we employ a Regression Discontinuity design to test whether banks pass on the cost of complying with the large exposures framework to borrowers above the threshold. We find no statistically significant evidence of bunching below the threshold, but we present evidence in support of a sizable 50 basis points interest rate premium for large exposures, relative to firms just below their bank's threshold. For the average loan, this implies a 25% increase in annual interest cost. Moreover, loan contracts right above the reporting threshold exhibit considerably shorter maturities. When firms approach their bank's large exposure threshold, they become more likely to borrow from other banks. We find that our results are almost exclusively driven by small banks, suggesting that the corresponding borrowers are also relatively small and cannot easily switch to alternative funding sources.
Winner of 2017 WFA-CFAR Best Finance PhD Paper Award
This paper presents evidence that personal relationships between corporate borrowers and bank loan officers improve the outcomes of loan renegotiation. Exploiting a bank reorganization in Greece in the mid-2010s, I find that firms that experience an exogenous interruption in their loan officer relationship confront three consequences: one, the firms are less likely to renegotiate their loans; two, conditional on renegotiation, the firms are given tougher loan terms; and three, the firms are more likely to alter their capital structure. These results point to the importance of lending relationships in mitigating the cost of distress for borrowers in loan renegotiations.
Securing the Unsecured: How do stronger creditor rights impact firms?
This paper identifies the impact of stronger creditor rights on firms' financing as well as on local economic development. The passage of an enforcement on cash assets reform in Croatia benefited mostly the unsecured creditors, as it made safer the collection of unsecured debt. Using a novel dataset on courts' efficiency and identifying geographical and sectoral variation on the exposure to the reform, I find that firms receive higher levels of trade credit and short term loans when the enforcement of creditor rights is stronger. Moreover, it is shown that such reforms could cause a distortion on firms' cash management, profitability, and investment. Lastly, more firms are incorporated in cities that have a higher exposure to the reform and the local level of employment and of investment is higher in those cities. These results provide evidence that a stronger enforcement of creditor rights decreases the barriers to entry for firms both at the extensive and at the intensive margin but at the same time it distorts the way that pre-existing firms operate.