Firm debt financing structures and the transmission of shocks in the euro area
Giulio Nicoletti and
Economic Bulletin Articles, 2022, vol. 4
The debt financing structure of euro area firms has broadened since the introduction of the euro. While bank loans still account for a major share of corporate debt, euro area firms have increasingly resorted to bond financing over the past decade and a half. Empirical evidence suggests that this shift in firms’ debt financing structures affects the transmission of shocks to the euro area economy. While corporate bonds and loans typically respond in a similar procyclical manner to exogenous changes in business investment, bond issuance tends to mildly cushion the credit contraction resulting from adverse supply shocks. The evidence also indicates that a higher share of bond financing strengthens the transmission of monetary policy measures that primarily operate via longer-term yields, whereas short-term rate changes tend to exert stronger real effects in economies that are more dependent on loans. From a broader perspective, the higher share of bond financing renders euro area firms more resilient against crises concentrated in the banking sector. However, this benefit may be counteracted by a rising presence of more vulnerable firms in the corporate bond market and by the structural vulnerabilities of non-bank financial intermediaries, which are significant investors in that market. JEL Classification: E44, E51, E52
Keywords: Bank lending to firms; Corporate bonds; Euro area; Monetary policy (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbart:2022:0004:2
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