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.
|Place of Publication||Tilburg|
|Publisher||European Banking Center|
|Number of pages||54|
|Publication status||Published - 31 Aug 2020|
|Name||EBC Discussion Paper|
- quantitative easing
- equity returns
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. (EBC Discussion Paper; Vol. 2020-001). European Banking Center.