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Tatjana Schulze

2 November 2023
WORKING PAPER SERIES - No. 2860
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Abstract
We study the heterogeneous impact of jointly identified monetary policy and global riskshocks on corporate funding costs. We disentangle these two shocks in a structural BayesianVector Autoregression framework and investigate their respective effects on funding costsof heterogeneous firms using micro-data for the US. We tease out mechanisms underlyingthe effects by contrasting financial frictions arising from traditional asset-based collateralconstraints with the recent earnings-based borrowing constraint hypothesis, differentiatingfirms across leverage and earnings. Our empirical evidence strongly supports the earnings-basedborrowing constraint hypothesis. We find that global risk shocks have stronger andmore heterogeneous effects on corporate funding costs which depend on firms’ positionwithin the earnings distribution.
JEL Code
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
23 March 2022
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 2, 2022
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Abstract
Notwithstanding the recent pick-up in corporate spreads in some markets, global corporate bond prices stand close to historical highs amid relatively low credit risk premia, particularly in lower-rated segments. At the same time, the COVID‑19 pandemic has increased the vulnerability and indebtedness of many firms around the world, with corporate credit ratings remaining below pre‑pandemic levels and some firms exhibiting relatively weak profitability. The model-based valuation analysis presented in this box suggests that the strong overall decline in global corporate bond spreads since the peak of the pandemic has been only partly driven by the market’s assessment of improving credit quality and could, to a large extent, be related to the strength of investors’ risk appetite. Based on analysis of bond-level valuations in the US corporate market, the box also shows that market-wide risk-off shocks have the potential to significantly increase corporate spreads and expected default probabilities, particularly for the weakest firms.
JEL Code
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading