The role of bank lending tightening on corporate bond issuance in the eurozone

Arbeitspapier

This paper empirically tests the role of bank lending tightening on non-financial corporate (NFC) bond issuance in the eurozone. By utilizing a unique data set provided by the ECB Bank Lending Survey, we capture the pure credit supply effect on corporate external financing. We find that tightened credit standards positively affect the NFC bond issuance: A 1pp increase in banks reporting considerable tightening on loans leads to around a 7% increase in firms' bond issuance in the eurozone. Focusing on a spectrum of aspects contributing to bank credit tightening, we document that banks' balance sheet constraints, as well as the perception of risk lead to significantly higher NFC bond issuance. In addition, we show that stricter lending conditions, such as wider margins, higher collateral requirements and covenants significantly increase NFC bond issuance volumes too. Furthermore, the impact of bank credit tightening on firms' bond issuance is particularly observable in core eurozone countries and not in peripheral countries. This is partially due to the underdeveloped debt capital markets in the peripheral countries.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CFS Working Paper ; No. 456

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
• Subject: Debt Securities ; Corporate Financing ; Euro Area ; Structural Change

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kaya, Orcun ; Wang, Lulu
• Event: Veröffentlichung
• (who): Goethe University Frankfurt, Center for Financial Studies (CFS)
• (where): Frankfurt a. M.
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/97177
• Last update: 10.03.2025, 11:43 AM CET