Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/252305 
Year of Publication: 
2022
Series/Report no.: 
ECONtribute Discussion Paper No. 144
Publisher: 
University of Bonn and University of Cologne, Reinhard Selten Institute (RSI), Bonn and Cologne
Abstract: 
This paper documents that the bond investments of insurance companies transmit shocks from insurance markets to the real economy. Liquidity windfalls from household insurance purchases increase insurers' demand for corporate bonds. Exploiting the fact that insurers persistently invest in a small subset of firms for identification, I show that these increases in bond demand raise bond prices and lower firms' funding costs. In response, firms issue more bonds, especially when their bond underwriters are well connected with investors. Firms use the proceeds to raise investment rather than equity payouts. The results emphasize the significant impact of investor demand on firms' financing and investment activities.
Subjects: 
Corporate Finance
Corporate Bonds
Insurance
Real Effects
JEL: 
G12
G22
G24
G32
G34
Document Type: 
Working Paper

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