Corporate QE in Europe during the COVID-19 crisis and debt overhang

A. Demirgüç-Kunt, Bálint Horváth, Harry Huizinga

Research output: Contribution to journalArticleScientificpeer-review

Abstract

This paper finds that shareholders of highly leveraged firms benefit relatively less compared to bondholders from the corporate QE announcements by the ECB and the Bank of England, 2020, as evidence of debt overhang. Firms more heavily impacted by the pandemic gain less from corporate QE, which could also reflect debt overhang. The monetary and fiscal responses to the pandemic are complements in the sense that a stronger pandemic-related fiscal response and higher pre-announcement sovereign CDS spreads enhance the positive effects of corporate QE on equity and debt valuations.
Original languageEnglish
Article number102855
JournalJournal of International Money and Finance
Volume135
DOIs
Publication statusPublished - Jul 2023

Keywords

  • quantitative easing
  • debt overhang
  • pandemic

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