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 large panel data of public and private firms, this paper dissects the growth of bond financing in the Euro Area through the lens of the cross-section of issuers. In recent years, the composition of bond issuers has shifted, with the entry of many smaller and riskier issuers. New issuers invest and grow, instead of simply repaying bank loans. Moreover, holdings of `buy-and-hold' bond investors are large in aggregate but small for weaker issuers. Nevertheless, the bond investors' sell-off after March 2020 was largely directed at bonds of larger, safer issuers. This micro-evidence can shed light on the implications of corporate bonds market development for smaller firms and financial stability.
The impact of quantitative easing on corporate bonds: Inspecting the mechanism,
with Lira Mota
In light of the recent COVID-19 crisis, it is clear that unconventional monetary policies have become part of the standard tool kit of developed countries central banks. A set of such policies affects directly corporate bonds. Understanding the underlying mechanisms through which they operate is of paramount importance for optimal policy design. In this paper, we study the impact of two unconventional monetary policy packages (CSPP and PEPP) adopted by the European Central Bank (ECB) on the corporate bond market. We use information on credit default swaps to decompose, in a model-free manner, corporate spreads into a default and a non-default component. While all ECB policies caused a decrease in corporate spreads, we find that the effect on the default component is small across all packages and the impact on corporate spreads is almost fully explained by the effect on the non-default component. We show evidence that this result is driven by the increase in demand for safer bonds as these are more affected by the ECB interventions.
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.