Too big to fail? Asymmetric effects of quantitative easing

Hsuan-Chi Chen, Robin K. Chou, Chih-Yung Lin and Chien-Lin Lu

Journal of Financial Stability, 2025, vol. 77, issue C

Abstract: In this study, we examine the impact of liquidity support from the Federal Reserve on the capital structures of firms of varying sizes. Our findings suggest that large firms tend to increase their debt financing and leverage ratios in response to significant shocks triggered by the large-scale asset purchases (LSAPs) of the US Federal Reserve. By contrast, small firms with preexisting banking relationships are more likely to receive liquidity support. Notably, small firms associated with smaller banks exhibit increased default risks. Furthermore, large firms exhibited weaker operating performance but received greater managerial compensation following the LSAP. This trend indicates potential inefficiencies in the distribution of funding facilitated by unconventional monetary policies.

Keywords: Banking relationships; Default probability; Inefficiency problem; Unconventional monetary policy (search for similar items in EconPapers)
JEL-codes: E12 E52 G21 G32 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:77:y:2025:i:c:s1572308925000142

DOI: 10.1016/j.jfs.2025.101385

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