Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/97177
Authors: 
Kaya, Orcun
Wang, Lulu
Year of Publication: 
2014
Series/Report no.: 
CFS Working Paper 456
Abstract: 
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.
Subjects: 
Debt Securities
Corporate Financing
Euro Area
Structural Change
JEL: 
E44
G23
G32
Document Type: 
Working Paper

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