Causal effects of the Fed's large-scale asset purchases on firms' capital structure

Andrea Nocera and Mohammad Pesaran

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: This paper investigates the short- and long-term impacts of the Federal Reserve’s large-scale asset purchases (LSAPs) on the capital structure of U.S. non-financial firms. To isolate the effects of LSAPs from the impact of concurrent macroeconomic conditions, we exploit cross-industry variations in the ability of firms therein to raise external funds without exhausting their debt capacity. We show that firms’ responses to LSAPs strongly depend on the financing decisions of other peers in the same industry. The higher the proportion of firms without high debt burdens in an industry, the stronger the response of firms within the industry to the Fed’s asset purchases. Overall, our results show that LSAPs facilitated firms’ access to debt financing and that the impacts of LSAPs on firms’ capital structure are likely to be long-lasting.

Keywords: Capital structure; identification; interactive effects; leverage; quantitative easing; unconventional monetary policy (search for similar items in EconPapers)
JEL-codes: E44 E52 E58 G32 (search for similar items in EconPapers)
Date: 2022-04-05
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cfn, nep-mac, nep-mon and nep-ore
Note: mhp1
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https://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe2224.pdf

Related works:
Working Paper: Causal Effects of the Fed's Large-Scale Asset Purchases on Firms' Capital Structure (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:2224

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