Are Euro-Area Corporate Bond Markets Irrelevant? The Effect of Bond Market Access on Investment

32 Pages Posted: 10 Aug 2016 Last revised: 21 Sep 2016

See all articles by Bastian von Beschwitz

Bastian von Beschwitz

Board of Governors of the Federal Reserve System

Conor Howells

Government of the United States of America - Division of International Finance (IFDP)

Date Written: June, 2016

Abstract

We compare how bond market access affects firms? investment decisions in the United States and the euro area. Having a bond rating enables US corporations to invest more and undertake more acquisitions. In contrast, in the euro area, bond ratings have no effect on investment decisions. Similarly, firms with bond ratings have higher leverage in the United States, but not in the euro area. This difference may be due to euro-area firms getting sufficient financing from banks. Consistent with this explanation, euro-area bond ratings became more relevant for investment after the banking crisis of 2008, when banks reduced their lending to firms.

JEL Classification: G31, G32, G34

Suggested Citation

von Beschwitz, Bastian and Howells, Conor, Are Euro-Area Corporate Bond Markets Irrelevant? The Effect of Bond Market Access on Investment (June, 2016). International Finance Discussion Paper No. 1176, Available at SSRN: https://ssrn.com/abstract=2820958 or http://dx.doi.org/10.17016/IFDP.2016.1176

Bastian Von Beschwitz (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Conor Howells

Government of the United States of America - Division of International Finance (IFDP) ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States

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