the effects of quantitative easing on corporate investment ... · whether qe has been able to fuel...

TheEffectsofQuantitativeEasingonCorporateInvestment,Employment,andFinancing:

TheoryandEvidencefromtheBondLendingChannel

ErasmoGiambonaRafaelMatta

José-LuisPeydró

3rdConferenceonBankingDevelopment,Stability,andSustainability

Santiago,Chile

November3,2017

Motivation:WhyCentralBanksTurnedtoQE

q AstheGreatRecessionhittheworldeconomyinthesecondhalfof2007,centralbanksaroundtheworldrespondedbycuttinginterestratestohistoricallows

q ByDecember16,2008,theFedFundsRateintheU.S.hadreached0.25%,thelowestFedFundsRatepossible(comparedto4.25%ayearearlier)

q Inthisenvironmentofeffectivelyzerointerestrates,theU.S.FederalReserveandothercentralbanksaroundtheworldquicklyturnedtoQuantitativeEasing(QE)tostimulatetheeconomy:

q Fed(Nov.2008),BankofEngland(March2009),BankofJapan(April2013),ECB(March2015)

Motivation:TreasuryBondsandMBSBymid-2014,thebalancesheetoftheFederalReservereachedthe

unprecedentedlevelof$4trillion(including$1.6trillionofmortgage-backedbondsand$2.4trillionoftreasuries)comparedto$0.5trillionpriortoQE

Motivationq Inspiteofthismassivemonetarypolicyintervention,thejuryisstillouton

whetherQEhasbeenabletofueltheU.S.economy

q Themedia,forinstance,areeitherskepticalonQEorsuggestthatQEmighthavebeenharmfultotherealeconomy:

q HasquantitativeeasingworkedintheUS?– BBC,October2014

q Willeurozone QEbetoolittle,toolate?– TheGuardian,January2015

q Realitycheck:doesquantitativeeasingwork?– TheGuardian,2016

q TheFedHasHurtBusinessInvestment–WSJ,October2015

q QELikelytoImpairLivingStandardsforGenerations– FinancialTimes,March2015

q Inthispaper,weprovidetheoryandevidencesuggestingthatQEstimulatedcorporateinvestmentandemploymentbyexpandingfirms'accesstothecorporatebondmarket,whilealsoloweringthecostofdebtfinancing:

q thebond-lendingchannel

QuantitativeEasingandBondYieldsq Figureshowsthatcorporateandtreasurybondyieldsstartedtodivergeattheendof2007(Great

Recession):“flight-to-quality”

q YieldsstartedtoconvergeassoonastheFedstartedQEattheendof2008

q Bymid-2009,yieldsonAAAcorporatebondswerepracticallyidenticaltoyieldson10-yeartreasurybonds

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%B

ond

Yie

lds

BBB Corporate Bonds AAA Corporate Bonds

5-Year Treasuries 10-Year Treasuries

U.S.CorporateBondIssuance(Source:SIFMA)

CorporatebondissuanceincreasedaftertheFedstartedQEattheendof2008

0

200

400

600

800

1.000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

InvestmentGrade HighYield

C&ILoans(Source:SurveyofTermsofBusinessLending)C&Iloans(especiallysecured)starttoincreasein2010-Q4(fiscalyear2010),theycontinuetoincreasein2011Q1-Q3(fiscalyear2010,andbitof2011),declineagainin2011-Q4and2012-Q1(fiscalyear2011),andstarttoincreaseonceagainfrom2012-Q2

0

20

40

60

80

100

120

140

ValueofC&ILoans($billions) ValueofSecuredC&ILoans($billions)

TransmissionMechanismofQuantitativeEasingthoughTreasuries

q ThroughQE,theFedbuystreasurybondsfrombanksandinstitutionalinvestors

q Thisreducesthesupplyoflong-termsafedebt,creatinganexcessdemandforlong-termsafebondsbyinstitutionalinvestors(e.g.,pensionfunds,insurancecompanies,andendowments)

q Theexcessdemandforlong-termsafebondreducestheiryield

q Inturn,thispromptsfirmsto“fillthegap”byissuingsafecorporatebonds(investmentgrade)inordertoreducetheiraveragecostofdebt(Greenwood,Hanson,Stein,2010)

q Asaresult,QEfacilitatesaccesstocheapercredit

q Inthegap-fillingtheoryinvestmentisdecoupledfromfinancing,butonecanenvisionrealeffectsinthepresenceofmarketfrictions

EffectsofQEthroughAssetBackedSecurities:OurModelq AcharacterizingelementoftheU.S.QEprogram(especially,QE-1)isthe

FedacquisitionofMBS,whichreached$1.6trillionbymid-2014from$0priorto2008

q Inourmodel,aQEprogramimplementedthroughtheacquisitionofMBSmakesthepriceofthesesecuritiesgoup

q Inturn,thiscreatesanincentiveforbankstopurchasereceivablesandothersecuritizable assetsfromfirmsandissueassetbackedsecurities

q Higherpricesforassetbackedsecuritiesmakethepriceofcorporatereceivablesandothersecuritizable assetsgoup(i.e.,marketvalueoffirmsassetsincrease)– Hence,bothABSfirmsandfirmswithsecuritizableassetsbenefit:

q 10%ofpublicfirmsuseABSaccordingtoLemmonetal.(2014)

q ReceivablesandLand&Buildings arerespectively14%and13%ofaveragefirm’sassets

q Thisallowsfirmsw/accesstothebondmarkettoissuelong-termsafebonds(whicharesellingatalowyieldbecauseoftheFedacquisitionoflong-termTreasuriesthroughQE)

q Accessto(moreandcheaper)“long-term”“safe”debtleadstomoreinvestment

Predictionsq QEleadstomoreinvestment andemploymentforfirmswith

accesstothebondmarket

q Thesefirmscaninvestmorebecausetheycanborrowmoreandatacheaperrate:

q Expectleveragetoincrease

q Expectcostofdebttodecrease

q Firmsareabletoincreaseleveragebyissuing“safe”“long-term”debt,whichistheclosestsubstituteforTreasurybonds:

q Expectseniordebttoincrease

q Expectdebtmaturitytoincrease

EmpiricalLiteratureonEffectsofQEFocusingonbanks,Chakraborty,Goldstein,andMacKinlay (2017)

findthatbanksthatbenefittedmorefromQEincreasedmortgageorigination,whilereducingcommerciallending(whichinturnledtolowerinvestmentbytheirclientfirms)

Usingsimilardata,Rodnyanski andDarmouni (2016)findasimilarincreaseinmortgageorigination,butinsignificantchangesforcommerciallending

LoDuca,Nicoletti,andMartinez(2016)focusonU.S.QEandfindastrongpositiverelationbetweenassetpurchaseactivitiesbytheFederalReserveandcorporatebondissuance

OurpapercomplementsthisliteraturebyshowingthatQEboostedcorporateinvestmentandemploymentbyincreasingtheavailabilityofcredit(whilealsoloweringthecostofdebt)throughthebond-lendingchannel

EmpiricalLiteratureonGovernmentandCorporatePoliciesOurpaperrelatesalsotothegrowingliteratureontheeffectof

governmentborrowingoncorporatepolicies:

Swanson(2011)andKrishnamurthyandVissing-Jorgensen(2011,2012)findthatchangesinthesupplyofTreasuriesaffectyieldsforcorporatebondsratedAorbetter

Usingdataforpublicfirmsoverthelastcentury,Graham,Leary,andRoberts(2014)findastrongnegativecorrelationbetweengovernmentdebtandcorporatedebtandinvestment

BadoerandJames(2016)findasignificantlynegativerelationbetweenthematurityoftreasurysecuritiesandthematurityofcorporatedebt

Similarly,Foley-Fisher,Ramcharan,andYu(2016)findthataftertheFedstartedtopurchaseslonger-termTreasuries(fromtheproceedsofshorter-termTreasuries)inSeptember2011corporationsfillthegapbyissuinglonger-termbonds

DataFirmleveldataarefromCOMPUSTAT

InformationonSeniorBonds&NotesIssuanceisfromCapitalIQ

DataonTreasuriesandMBSsheldbytheFedandbondyieldsarefromtheFREDDatabase

CorporatebondissuancedataarefromtheSecuritiesIndustryandFinancialMarketsAssociation(SIFMA)

ABSdataarefromtheU.S.FlowofFunds

EmpiricalDesignClaim:QEaffectsaccessto(moreandcheaper)“safe”“long-term”creditand

facilitatesrealactivitiesoffirmswithaccesstothebondmarket(treatedfirms),relativetofirmswhodonothaveaccesstosuchmarket(controlfirms)

Inouridentification:q OnlyfirmswithaccesstothebondmarketwillbenefitfromtheeffectsofQEonquantityand

pricinginthebondmarketq WhilebothtreatedandcontrolfirmsarepotentiallyexposedtoQEthroughbanklending

(becausebothgroupsborrowfrombanks)

Weuseadifference-in-differenceapproachcomparinginvestment,employment,leverage,etc.forfirmswithandwithoutaccesstobondmarketintheeightyears(2004– 2011)aroundtheFEDbeginningofQEpolicyinNovember2008– EstimatethefollowingModel:

𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡(,* = 𝛽(𝐵𝑜𝑛𝑑𝑀𝑎𝑟𝑘𝑒𝑡𝐴𝑐𝑐𝑒𝑠𝑠×𝑄𝐸𝑃𝑒𝑟𝑖𝑜𝑑)(,*

+𝜸𝑪𝒐𝒏𝒕𝒓𝒐𝒍𝒔(,* + 𝑦( + 𝑧* + 𝜀(,*

Investment:ratioofCAPXtolaggedPP&E

BondMarketAccess:indicatorforfirmswithbondmarketaccessin2007QEPeriod:indicatorequalto1forthefiscalyears2008-2011(andzerofor2004-2007)yi andzt:firmandyearfixedeffects

TheEffectofQuantitativeEasingonInvestmentStartingwithInvestment,wefindthecoefficientoninteractiontermtobesignificantlypositiveacrossallsix

estimations

Inlinew/prediction,thesignificantlypositivecoefficientforinteractiontermsuggeststhatinvestmentincreasedforfirmswithaccesstobondmarket(treated)intheQEperiod:QEstimulatesrealactivities

Dependent variable:

Investment

(1) (2) (3) (4) (5) (6) Bond Market Access × QE Period 0.104*** 0.086*** 0.100*** 0.088*** 0.105*** 0.074***

(0.012) (0.012) (0.012) (0.011) (0.011) (0.012)

Log of Sales -0.062*** -0.065*** -0.093*** -0.049*** -0.062*** -0.081*** (0.018) (0.019) (0.019) (0.017) (0.018) (0.020)

Tobin’s q 0.046*** 0.025*** (0.008) (0.008)

Profitability 0.408*** 0.261*** (0.068) (0.071)

EarningsVolat ilit y 1.201*** 1.078*** (0.137) (0.148)

Tangibilit y -0.046 0.042 (0.090) (0.092)

Firm Fixed Effects Yes Yes Yes Yes Yes Yes Year Fixed Effects Yes Yes Yes Yes Yes Yes Obs. 26,772 22,566 26,753 26,735 26,768 22,542 R-2 (within) 0.036 0.045 0.042 0.080 0.036 0.084

Note: * ** , ** and * indicate stat ist ical significance at the 1%, 5%, and 10% (two-tail) test levels, respect ively.

TheEffectofQuantitativeEasingonEmployment

Dependent variable:

Employment


(0.005) (0.006) (0.005) (0.005) (0.005) (0.006)

Log of Sales 0.024*** 0.028*** 0.012*** 0.026*** 0.024*** 0.021*** (0.006) (0.006) (0.006) (0.006) (0.006) (0.006)

Tobin’s q 0.027*** 0.021*** (0.003) (0.003)

Profitability 0.169*** 0.111*** (0.026) (0.028)

EarningsVolat ilit y 0.305*** 0.235*** (0.039) (0.038)

Tangibilit y -0.104*** -0.071* (0.036) (0.038)



TheEffectofQuantitativeEasingonFirm’sValueandPerformance

Didincreasedinvestmentandemploymentleadtohighervaluationandstrongerperformanceforthetreatedfirms?

Dependent variable:

Tobin’s q

Operat ing Income Before Depreciat ion

& Amort izat ion/ Assets

Operat ing Income After Depreciat ion & Amort izat ion/

Assets Net Income/

Assets

(1) (2) (3) (4) Bond Market Access × QE Period 0.252*** 0.009*** 0.012*** 0.018***

(0.031) (0.003) (0.003) (0.004)

Log of Sales -0.138*** 0.064*** 0.061*** 0.051*** (0.035) (0.004) (0.004) (0.005)

EarningsVolat ilit y 1.578*** 0.071*** 0.083*** 0.115***

(0.291) (0.020) (0.021) (0.024)

Tangibilit y -0.547*** -0.065*** -0.139*** -0.310*** (0.152) (0.017) (0.018) (0.025)

Firm Fixed Effects Yes Yes Yes Yes Year Fixed Effects Yes Yes Yes Yes Obs. 22,704 26,920 26,933 26,933 R-2 (within) 0.138 0.119 0.108 0.078


TheEffectofQuantitativeEasingonCashHoldingsDidQEleadtoanincreaseincashholdingsfortreatedfirms?

Increaseincashfortreatedfirmssuggeststhatbyfacilitatingaccesstocheaperdebtfinancing,QEmighthavehelpedfirmsbuilduptheircashcushions

Dependent variable:

Cash


(0.003) (0.003) (0.003) (0.003) (0.003) (0.003)

Log of Sales -0.043*** -0.048*** -0.050*** -0.043*** -0.037*** -0.045*** (0.004) (0.004) (0.004) (0.004) (0.004) (0.004)

Tobin’s q 0.015*** 0.011*** (0.002) (0.002)

Profitability 0.115*** 0.089*** (0.014) (0.013)

EarningsVolat ilit y 0.082*** 0.031** (0.016) (0.013)

Tangibilit y -0.479*** -0.499*** (0.022) (0.022)



TheEffectofQuantitativeEasingonAccesstoCreditInourmodel,firmsinvestmorebyincreasingleveragewhilereducingtheiraveragecostofdebt

IncreasedleverageandreducedinterestexpensessuggestthatQEfacilitatedaccesstomoreandcheapercreditfortreatedfirms,whichthenstimulatedrealactivities

Dependent variables:

Market Leverage

Book Leverage

Interest Expenses/ Debt

(1) (2) (3) (4) (5) (6) Bond Market Access × QE Period 0.020*** 0.025*** 0.016*** 0.015*** -0.005** -0.008***

(0.004) (0.004) (0.005) (0.005) (0.003) (0.003)

Log of Sales 0.018*** 0.025*** 0.012*** 0.024*** -0.002 -0.007** (0.003) (0.004) (0.004) (0.004) (0.002) (0.003)

Tobin’s q -0.018*** -0.007*** 0.008*** (0.002)

(0.001) (0.002)

Profitability -0.199*** -0.208*** 0.044*** (0.014) (0.018) (0.014)

EarningsVolat ility 0.023** 0.014 -0.020* (0.011) (0.013)

(0.012)

Tangibility 0.131*** 0.133*** -0.014 (0.024) (0.026) (0.015)


Note: ** * , ** and * indicate stat ist ical significance at the 1%, 5%, and 10% (two-tail) test levels, respect ively.

QEandDebtComposition:SeniorDebt

Inourmodel,affectedfirmsareabletoincreaseleveragebyissuinglonger-term(relativelysafer)corporatebondsandnotes,whichareclosesubstitutesforTreasurybonds

Dependent variable:

Senior Bonds &

Notes/ Debt


(0.010) (0.011) (0.010) (0.010) (0.010) (0.011)

Log of Sales 0.014** 0.017*** 0.022*** 0.015** 0.014** 0.026*** (0.006) (0.007) (0.006) (0.007) (0.006) (0.007)

Tobin’s q -0.005 -0.004 (0.003) (0.003)

Profitability -0.117*** -0.103*** (0.029) (0.030)

EarningsVolat ilit y 0.012 0.019 (0.036) (0.042)

Tangibilit y -0.032 -0.048 (0.047) (0.052)



QEandDebtComposition:DebtMaturity

Dependent variable:

Debt Maturing >

1 Year

Debt Maturing

in 2 Years

Debt Maturing

in 3 Years

Debt Maturing

in 4 Years

Debt Maturing

in 5 Years

Debt Maturing >

5 Years (1) (2) (3) (4) (5) (6)

Bond Market Access × QE Period 0.037*** -0.010 0.009 0.042*** 0.029*** -0.004

(0.009) (0.006) (0.006) (0.006) (0.007) (0.012)

Log of Sales 0.009 -0.013** -0.015** 0.005 0.015** 0.032*** (0.007) (0.006) (0.006) (0.005) (0.006) (0.010)

Tobin’s q -0.019*** -0.001 -0.003 -0.003 -0.001 -0.010** (0.004) (0.003) (0.002) (0.003) (0.003) (0.005)

Profitability 0.067* 0.024 0.042 0.044* -0.008 -0.025 (0.037) (0.037) (0.026) (0.026) (0.027) (0.043)

EarningsVolat ility 0.063** 0.001 -0.016 -0.015 0.037 0.085** (0.032) (0.033) (0.021) (0.0225) (0.025) (0.037)

Tangibility 0.013 0.026 0.034 0.079** -0.002 -0.117* (0.042) (0.037) (0.030) (0.031) (0.033) (0.061)



TheEffectsofQuantitativeEasing:Graphically

7.4pp

1.9pp

25.2 (=0.252*100)

0.9pp 2.2pp 2.5pp1.5pp

-0.8pp

7.8pp

3.7pp

35,7%

38,1%

16,1%

7,3%

27,1%

9,5%

4,3%

-11,6%

13,4%

4,1%

-14%

-9%

-4%

1%

6%

11%

16%

21%

26%

31%

36%

Investment Employment Tobin's q Profitability Cash Market Leverage Book Leverage Interest Expenses/Debt

Senior Bonds & Notes/Debt

Debt Maturing > 1 Year

QE-Period Change QE-Period Change (in percentage of treated average)

TheEffectofQuantitativeEasingbyPhase:QE-1andQE-2

ThisexerciseallowsustoidentifywhenQEstartedtobeeffective

TheEffectofQuantitativeEasingbyPhase(cont’d)

ThisexerciseallowsustoidentifywhenQEstartedtobeeffective

TheEffectsofQEforInvestmentGradeandSpeculativeGradeFirms

InvestmentgradefirmsshouldbenefitmorefromQEbecauseinvestmentgradebondsarebettersubstitutesforTreasurybondsandagencyMBS

TheEffectsofQEforInvestmentGradeandSpeculativeGradeFirms(cont’d)

InvestmentgradefirmsshouldbenefitmorefromQEbecauseinvestmentgradebondsarebettersubstitutesforTreasurybondsandagencyMBS

TheEffectsofQE:ControllingforTreated-SpecificTrends

TheEffectsofQE:ControllingforTreated-SpecificTrends(cont’d)

Robustness:AlternativeInvestmentMeasures

Dependent variable:

Capital Expenditures/ Property, Plant , &

Equipment

Capital Expenditures/ Assets

Capital Expenditures/ Lagged Assets

(1) (2) (3) (4) (5) (6) Bond Market Access × QE Period 0.035*** 0.026*** 0.007*** 0.003** 0.014*** 0.006**

(0.004) (0.004) (0.001) (0.002) (0.002) (0.003)

Log of Sales -0.007 -0.005 -0.001 0.001 -0.012*** -0.014*** (0.005) (0.005) (0.002) (0.002) (0.003) (0.003)

Tobin’s q 0.015*** 0.003*** 0.004*** (0.002)

(0.001) (0.001)

Profitability 0.056** 0.001 0.055*** (0.023) (0.007) (0.011)

EarningsVolat ility 0.091*** 0.011* 0.171*** (0.023) (0.006)

(0.023)

Tangibility -0.142*** 0.168*** 0.125*** (0.022) (0.009) (0.018)



ConclusionsUsingadifference-in-differenceapproach,wefind

thatbond-marketfirmshaveaccesstomoreandcheapercreditintheQEperiod(relativetocontrolfirms)

Notably,thesefirmsareabletoincreaseleveragebyissuing“safer”and“longer-maturity”bondsandnotes,whichareclosersubstitutesforTreasuries

Wealsofindthatfirmsutilizethisincreasedaccesstocredittoinvest,hire,andbuilduptheircashreserves

Overall,ourfindingssuggestthatQEstimulatedrealactivitiesthroughthebond-lendingchannel

the effects of quantitative easing on corporate investment ... · whether qe has been able to fuel...

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