Which Firms Benefit from Corporate QE during the COVID-19 Crisis? The Case of the ECB's Pandemic Emergency Purchase Program
Using an event study methodology, this paper examines how European firms have been affected by the announcement of the European Central Bank's Pandemic Emergency Purchase Program (PEPP). Firms with an investment grade rating benefit relatively...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2020
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/593271599061682497/Which-Firms-Benefit-from-Corporate-QE-during-the-COVID-19-Crisis-The-Case-of-the-ECBs-Pandemic-Emergency-Purchase-Program http://hdl.handle.net/10986/34426 |
| Summary: | Using an event study methodology, this
paper examines how European firms have been affected by the
announcement of the European Central Bank's Pandemic
Emergency Purchase Program (PEPP). Firms with an investment
grade rating benefit relatively more, as evidenced by higher
share prices and lower credit default swap spreads, which
reflects that the European Central Bank is restricted to
purchasing investment grade corporate debt securities. The
gains to shareholders relative to the total gains of
shareholders and debtholders are negatively related to firm
leverage, consistent with the existence of debt overhang.
Firms that are more heavily impacted by the pandemic benefit
relatively little from the PEPP, which could reflect that
the business models of some of these firms heavily damaged
by the pandemic. Monetary policy in the form of the PEPP and
national fiscal responses to the pandemic are shown to be
complements in the sense that a strong pre-PEPP fiscal
response enhances the potential for the program to have a
positive effect on equity and debt valuations. |
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