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Euro area corporate debt securities market: first empirical evidence

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  • de Bondt, Gabe
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    Abstract

    A striking development in the euro area financial markets since 1999 was the rapid growth of the corporate debt securities market. This paper offers a first empirical examination of this market since the introduction of the euro using macroeconomic data. It is shown that corporate debt issuance is positively correlated with mergers and acquisitions and with industrial production, taken as a proxy of investment expenditures or working capital. Substitution with other sources of finance is shown to be related to cost differentials. The timing and size of these explanatory factors of corporate debt securities issuance differ across maturity. The empirical findings also show that corporate bond spreads lag short-term interest rates and lead real economic activity. All this suggests that the euro area corporate bond market, though still young, is informative for monetary policy and may develop into a significant link in the euro area monetary policy transmission process. JEL Classification: G32, E44

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    Bibliographic Info

    Paper provided by European Central Bank in its series Working Paper Series with number 0164.

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    Date of creation: Aug 2002
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    Handle: RePEc:ecb:ecbwps:20020164

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    Keywords: corporate bond spreads; Corporate debt securities issuance; euro area;

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    1. Iryna V. Ivaschenko & Jorge A. Chan-Lau, 2001. "Corporate Bond Risk and Real Activity," IMF Working Papers 01/158, International Monetary Fund.
    2. John V. Duca, 1999. "What credit market indicators tell us," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q III, pages 2-13.
    3. Davis, E Philip & Fagan, Gabriel, 1997. "Are Financial Spreads Useful Indicators of Future Inflation and Output Growth in EU Countries?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(6), pages 701-14, Nov.-Dec..
    4. Joaquim Vieira Ferreira Levy & Alessandro Calza & Dieter Gerdesmeier, 2001. "Euro Area Money Demand," IMF Working Papers 01/179, International Monetary Fund.
    5. E. P. Davis, 2001. "Multiple Avenues of Intermediation, Corporate Finance and Financial Stability," IMF Working Papers 01/115, International Monetary Fund.
    6. A. Calza & C. Gartner & J. Sousa, 2003. "Modelling the demand for loans to the private sector in the euro area," Applied Economics, Taylor & Francis Journals, vol. 35(1), pages 107-117.
    7. Choe, Hyuk & Masulis, Ronald W. & Nanda, Vikram, 1993. "Common stock offerings across the business cycle : Theory and evidence," Journal of Empirical Finance, Elsevier, vol. 1(1), pages 3-31, June.
    8. Benninga, Simon & Talmor, Eli, 1988. "The Interaction of Corporate and Government Financing in General Equilibrium," The Journal of Business, University of Chicago Press, vol. 61(2), pages 233-58, April.
    9. William C. Brainard & James Tobin, 1968. "Pitfalls in Financial Model-Building," Cowles Foundation Discussion Papers 244, Cowles Foundation for Research in Economics, Yale University.
    10. Patrick Bolton & Xavier Freixas, 2000. "Equity, Bonds, and Bank Debt: Capital Structure and Financial Market Equilibrium under Asymmetric Information," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 324-351, April.
    11. Davis, E Philip & Mayer, Colin, 1991. "Corporate Finance in the Euromarkets and the Economics of Intermediation," CEPR Discussion Papers 570, C.E.P.R. Discussion Papers.
    12. Gabe de Bondt, 1999. "Credit channels and consumption in Europe: empirical evidence," BIS Working Papers 69, Bank for International Settlements.
    13. George Athanassakos & Peter Carayannopoulos, 2001. "An empirical analysis of the relationship of bond yield spreads and macro economic factors," Applied Financial Economics, Taylor & Francis Journals, vol. 11(2), pages 197-207.
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    Cited by:
    1. Walter Waschiczek, 2004. "The Role of Corporate Bonds for Finance in Austria," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 39–52.
    2. de Bondt, Gabe & Marqués-Ibáñez, David, 2004. "The high-yield segment of the corporate bond market: a diffusion modelling approach for the United States, the United Kingdom and the euro area," Working Paper Series 0313, European Central Bank.
    3. Calza, Alessandro & Manrique, Marta & Sousa, João, 2003. "Aggregate loans to the euro area private sector," Working Paper Series 0202, European Central Bank.
    4. Buchmann, Marco, 2011. "Corporate bond spreads and real activity in the euro area - Least Angle Regression forecasting and the probability of the recession," Working Paper Series 1286, European Central Bank.

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