Which Firms Benefit from Corporate QE during the COVID-19 Crisis? The Case of the ECB’s Pandemic Emergency Purchase Program

Asli Demirguc-Kunt, Balint L. Horvath, Harry Huizinga

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Abstract

Using an event study methodology, this paper examines how European firms have been affected by the announcement of the Pandemic Emergency Purchase Program (PEPP) of the ECB. Firms with an investment-grade rating benefit relatively more as evidenced by higher share prices and lower CDS spreads, which reflects that the ECB is restricted to purchasing investment-grade corporate debt securities. The gains to shareholders relative to the total gains of shareholders and debtholders are negatively related to firm leverage, consistent with the existence of debt overhang. Firms more heavily impacted by the pandemic benefit relatively little from the PEPP, which could reflect that the business models of some of these firms are heavily damaged by the pandemic. Monetary policy in the form of the PEPP and national fiscal responses to the pandemic are shown to be complements in the sense that a strong pre-PEPP fiscal response enhances the potential for the PEPP to positively affect equity and debt valuations.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages54
Volume2020-022
Publication statusPublished - 31 Aug 2020

Publication series

NameCentER Discussion Paper
Volume2020-022

Keywords

  • quantitative easing
  • equity returns
  • Pandemic

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    Demirguc-Kunt, A., Horvath, B. L., & Huizinga, H. (2020). Which Firms Benefit from Corporate QE during the COVID-19 Crisis? The Case of the ECB’s Pandemic Emergency Purchase Program. (CentER Discussion Paper; Vol. 2020-022). CentER, Center for Economic Research.