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The role of bank lending tightening on corporate bond issuance in the eurozone

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  • Kaya, Orcun
  • Wang, Lulu

Abstract

The availability of bank lending and corporate bond markets underwent a drastic change in the eurozone with the break out of the financial crisis. To quantify the relation between the two, this paper empirically tests the role of bank lending tightening on non-financial corporate (NFC) bond issuance in the eurozone. By utilizing a unique data set provided by the ECB Bank Lending Survey, we capture the “pure” credit supply effect on corporate external financing in a sample period of 2003–2013. We find that tightened credit standards positively affect the NFC bond issuance: a 1pp increase in banks reporting considerable tightening on loans leads to around a 7% increase in firms’ bond issuance in the eurozone. The substitution effect is net of the demand for bank lending and robust to factors such as price differentials. The impact of bank credit tightening on firms’ bond issuance is particularly observable in core eurozone countries. This is partially due to the underdeveloped debt capital markets in some countries.

Suggested Citation

  • Kaya, Orcun & Wang, Lulu, 2016. "The role of bank lending tightening on corporate bond issuance in the eurozone," The Quarterly Review of Economics and Finance, Elsevier, vol. 60(C), pages 1-11.
    • Handle: RePEc:eee:quaeco:v:60:y:2016:i:c:p:1-11
    DOI: 10.1016/j.qref.2015.10.005
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    Cited by:

    1. Dungey, Mardi & Flavin, Thomas J. & Lagoa-Varela, Dolores, 2020. "Are banking shocks contagious? Evidence from the eurozone," Journal of Banking & Finance, Elsevier, vol. 112(C).
    2. Jitka Pomenkova & Eva Klejmova & Zuzana Kucerova, 2019. "Cyclicality in lending activity of Euro area in pre- and post- 2008 crisis: a local-adaptive-based testing of wavelets," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 19(1), pages 155-175.

    More about this item

    Keywords

    Debt securities; Corporate financing; Eurozone; Structural change;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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