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Corporate Quantitative Easing in Europe during the COVID-19 Crisis and Debt Overhang

Author

Listed:
  • Asli Demirgüç-Kunt

    (Center for Global Development)

  • Bálint L. Horváth

    (University of Arizona)

  • Harry Huizinga

    (Tilburg University and CEPR)

Abstract

This paper finds that shareholders of highly leveraged firms benefit relatively less compared to bondholders from the corporate quantitative easing (QE) announcements by the European Central Bank and the Bank of England in March 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 credit default swap (CDS) spreads enhance the positive effects of corporate QE on equity and debt valuations.

Suggested Citation

  • Asli Demirgüç-Kunt & Bálint L. Horváth & Harry Huizinga, 2023. "Corporate Quantitative Easing in Europe during the COVID-19 Crisis and Debt Overhang," Working Papers 642, Center for Global Development.
    • Handle: RePEc:cgd:wpaper:642
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    More about this item

    Keywords

    Quantitative easing; debt overhang; pandemic;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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