Cutting Out the Middleman – The ECB as Corporate Bond Investor

The European Central Bank’s Corporate Sector Purchase Programme (CSPP), launched in June 2016, increased the supply and lowered the cost of capital for eligible, i.e., investment grade, Eurozone firms through direct corporate bond purchases. We document a significant increase in bond debt for eligible firms. In particular eligible firms of lower credit quality change the composition of credit from bank-based to market-based financing, without affecting investment decisions. High credit quality firms increase payouts to shareholders and acquisition activity. Mergers announced by eligible firms after the introduction of the CSPP have lower announcement returns. Finally, we find evidence consistent with positive spillovers to firms that do not have access to bond financing. Banks with a high share of CSPP-eligible firms increase lending particularly to private but not public firms after introduction of the CSPP.

Steffen, Sascha, Benjamin Grosse-Rueschkamp and Daniel Streitz (2017), Cutting Out the Middleman – The ECB as Corporate Bond Investor,