Investor-driven corporate finance: evidence from insurance markets

Christian Kubitza

No 2816, Working Paper Series from European Central Bank

Abstract: I study the causal effect of bond investor demand on the financing and investment decisions of nonfinancial firms using granular data on the bond transactions of U.S. insurance companies. Liquidity inflows from insurance premiums combined with insurers’ persistent investment preferences identify bond demand shifts, which 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 rather than shareholder payouts, particularly by financially constrained firms. The results emphasize that bond investors significantly affect corporate financing and investment decisions through their price impact. JEL Classification: G12, G22, G23, G3, G32

Keywords: corporate bonds; corporate investment; institutional investors; insurance (search for similar items in EconPapers)
Date: 2023-05
New Economics Papers: this item is included in nep-cfn and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Investor-Driven Corporate Finance: Evidence from Insurance Markets (2022)
Working Paper: Investor-driven corporate finance: Evidence from insurance markets (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20232816

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