Working Paper

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

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.

Keywords: Mergers and acquisitions; Bond ratings; Investment; Financing constraints;

JEL Classification: G31; G32; G34;

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Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: International Finance Discussion Papers

Publication Date: 2016-06-30

Number: 1176

Pages: 29 pages