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Are Euro-Area Corporate Bond Markets Irrelevant? The Effect of Bond Market Access on Investment

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Abstract

We compare how bond market access affects firms? investment decisions in the United States and the euro area. Having a bond rating enables US corporations to invest more and undertake more acquisitions. In contrast, in the euro area, bond ratings have no effect on investment decisions. Similarly, firms with bond ratings have higher leverage in the United States, but not in the euro area. This difference may be due to euro-area firms getting sufficient financing from banks. Consistent with this explanation, euro-area bond ratings became more relevant for investment after the banking crisis of 2008, when banks reduced their lending to firms.

Suggested Citation

  • Conor T. Howells & Bastian von Beschwitz, 2016. "Are Euro-Area Corporate Bond Markets Irrelevant? The Effect of Bond Market Access on Investment," International Finance Discussion Papers 1176, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:1176
    DOI: 10.17016/IFDP.2016.1176
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    Cited by:

    1. Darmouni, Olivier & Geisecke, Oliver & Rodnyanky, Alexander, 2019. "The Bond Lending Channel of Monetary Policy," MPRA Paper 95141, University Library of Munich, Germany.

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    More about this item

    Keywords

    Mergers and acquisitions; Bond ratings; Investment; Financing constraints;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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