Investor-Driven Corporate Finance: Evidence from Insurance Markets

Christian Kubitza

No 144, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: I study the effect of bond investor demand on the financing and investment decisions of nonfinancial firms using granular data on the bond transactions of insurance companies. Liquidity inflows from insurance premiums combined with insurers’ persistent investment preferences identify bond demand shifts in the secondary market. These raise bond prices and reduce firms’ financing costs. In response, firms issue more bonds, especially when they have well-connected bond underwriters. The proceeds are used for investment activities, particularly by financially constrained firms. My findings emphasize that bond investors significantly affect corporate decisions through their price impact.

Keywords: Central clearing counterparties (CCPs) were established to mitigate default losses resulting from counterparty risk in derivatives markets. In a parsimonious model; we show that clearing benefits are distributed unevenly across market participants. Loss sharing rules determine who wins or loses from clearing. Current rules disproportionately benefit market participants with flat portfolios. Instead; those with directional portfolios are relatively worse off; consistent with their reluctance to voluntarily use central clearing. Alternative loss sharing rules can address cross-sectional disparities in clearing benefits. However; we show that CCPs may favor current rules to maximize fee income; with externalities on clearing participation. (search for similar items in EconPapers)
Pages: 97 pages
Date: 2022-02
New Economics Papers: this item is included in nep-cfn, nep-ias and nep-isf
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_144_2022.pdf Third version, 2023 (application/pdf)

Related works:
Working Paper: Investor-driven corporate finance: evidence from insurance markets (2023)
Working Paper: Investor-driven corporate finance: Evidence from insurance markets (2021)
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