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Exorbitant Privilege? Quantitative Easing and the Bond Market Subsidy of Prospective Fallen Angels / Viral V. Acharya, Ryan Banerjee, Matteo Crosignani, Tim Eisert, Renée Spigt.
- Format:
- Book
- Author/Creator:
- Acharya, Viral V.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w29777.
- NBER working paper series no. w29777
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2022.
- Summary:
- We document capital misallocation in the U.S. investment-grade (IG) corporate bond market, driven by quantitative easing (QE). Prospective fallen angels--risky firms just above the IG cutoff--enjoyed subsidized bond financing in 2009-19. This effect is driven by prolonged cumulative Fed purchases of securities inducing long-duration IG-focused investors to rebalance their portfolios towards higher-yielding IG bonds. The benefiting firms (i) exploited the sluggish downward adjustment of credit ratings after M&A to finance risky acquisitions with bond issuances, (ii) increased market share affecting competitors' employment and investment, but (iii) suffered severe downgrades at the onset of the pandemic.
- Notes:
- Print version record
- February 2022.
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