EconPapers    
Economics at your fingertips  
 

Exorbitant Privilege? Quantitative Easing and the Bond Market Subsidy of Prospective Fallen Angels

Viral Acharya (), Ryan Banerjee, Matteo Crosignani (), Tim Eisert and Renée Spigt

No 29777, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We document capital misallocation in the U.S. investment-grade (IG) corporate bond market, driven by quantitative easing (QE). Prospective fallen angels—risky firms just above the IG rating cutoff—enjoyed subsidized bond financing since 2009, especially when the scale of QE purchases peaked and from long-duration IG-focused investors that held more securities purchased in QE programs. The benefiting firms used this privilege to fund risky acquisitions and increase market share, exploiting the sluggish adjustment of credit ratings in downgrading after M&A, which adversely affected competitors' employment and investment. Eventually, these firms suffered severe downgrades at the onset of the pandemic.

JEL-codes: E44 E52 E58 G01 G20 (search for similar items in EconPapers)
Date: 2022-02
New Economics Papers: this item is included in nep-ban, nep-fmk, nep-mac and nep-mon
Note: AP CF ME
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.nber.org/papers/w29777.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
Working Paper: Exorbitant privilege? Quantitative easing and the bond market subsidy of prospective fallen angels (2022) Downloads
Working Paper: Exorbitant Privilege? Quantitative Easing and the Bond Market Subsidy of Prospective Fallen Angels (2022) Downloads
Working Paper: Exorbitant Privilege? Quantitative Easing and the Bond Market Subsidy of Prospective Fallen Angels (2022) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:29777

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w29777
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2022-09-15
Handle: RePEc:nbr:nberwo:29777