Which firms benefit from corporate QE during the COVID-19 crisis? The case of the ECB’s Pandemic Emergency Purchase Program

Harry Huizinga, Demirgüç-Kunt, Asli and Horváth, Bálint
Authors registered in the RePEc Author Service: Balint Horvath and Asli Demirguc-Kunt

No 15224, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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.

Keywords: Quantitative easing; Equity returns; Pandemic (search for similar items in EconPapers)
JEL-codes: E52 G14 (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-mac and nep-mon
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