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

Orcun Kaya and Lulu Wang

No 456, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: 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. 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. Focusing on a spectrum of aspects contributing to bank credit tightening, we document that banks' balance sheet constraints, as well as the perception of risk lead to significantly higher NFC bond issuance. In addition, we show that stricter lending conditions, such as wider margins, higher collateral requirements and covenants significantly increase NFC bond issuance volumes too. Furthermore, the impact of bank credit tightening on firms' bond issuance is particularly observable in core eurozone countries and not in peripheral countries. This is partially due to the underdeveloped debt capital markets in the peripheral countries.

Keywords: Debt Securities; Corporate Financing; Euro Area; Structural Change (search for similar items in EconPapers)
JEL-codes: E44 G23 G32 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-ban, nep-eec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:456

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