Sources: Large Exposure dataset, IMIR, Dealogic, Orbis and authors’ calculations. Notes: The desk consists of the estimated coefficient obtained through a dynamic panel with Arellano and Bond estimator where the change in complete property, leverage and financing structure over two subsequent quarters are regressed on the change in bonds and loans. ∆TA, ∆Lev and ∆Financing Structure point out the adjustments in the logarithm of firms’ total property, leverage (measured as debt over whole property) and financing structure (measured as share of financial institution loans to whole debt) respectively, after issuing bonds. This article has reviewed the evolution of firm financing constructions in the euro area and the implications for macroeconomic shock transmission. The share of bonds in euro area corporate debt has risen, in particular since the GFC, and this trend has persisted through the continuing pandemic crisis. However, the motives for companies to access bond markets have differed throughout these crises. Throughout the GFC, companies accessed bond markets as an alternative for falling loan supply.

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This contrasting image is consistent with the different mortgage supply circumstances that prevailed in the respective crises. This in flip forced companies with access to bond markets to resort to this different source of debt finance, however its high relative price on the time (Chart 3, panel a). Moreover, the discount in mortgage provide led lots of the totally bank-dependent firms to be shut off from external financing, which strengthened the contractionary impression of the GFC on their business activity. However, in the course of the pandemic disaster banks benefited from their previous efforts to restore their stability sheets, accompanied by a strengthening of the euro area regulatory and supervisory framework, and from the broad-based mostly policy response to protect credit score provide. This enabled them to deploy their lending capability as a backstop to the company sector, leading to much more benign loan provide conditions (Chart 3, panel b). Therefore, the expansion of corporate bond finance through the pandemic disaster has not resulted from necessity, but from firms selecting to capitalise on the favourable price of company bond finance over that interval (Chart 3, panel b).

The debt financing structure of euro space companies has broadened since the introduction of the euro as the frequent forex. Because of this, the excellent volume of bonds relative to financial institution borrowing by euro area firms has risen to around 30%, up from roughly 15% in mid-2008. Corporate bond markets have subsequently emerged as an more and more vital determinant of euro area credit score circumstances over the previous decade and a half. The rise in bond financing has continued in the course of the coronavirus (COVID-19) pandemic, albeit reflecting different drivers than in the course of the GFC and its aftermath. Amid acute vulnerabilities throughout the banking sector, loan provide contracted within the wake of the GFC (Section 2). This forced companies to show to bond markets as an alternative source of credit score, regardless of the higher relative cost at the moment. During the pandemic, corporations as a substitute benefited from extra favourable loan provide circumstances than throughout the GFC. This was because (1) banks entered the pandemic with significantly stronger steadiness sheets, partly owing to the regulatory overhaul of the previous decade, and (2) bank intermediation capability was underpinned by a swift and extensive fiscal, supervisory and monetary policy response. Th is was g​en᠎erat᠎ed  by G᠎SA᠎ Con tent Gener ator  D em᠎over si᠎on .

Long-term investors’ mandates limit their exposure to threat and can systematically exclude new issuers because of their bond measurement or rating status. Second, we see larger shares of holdings by households (14% compared with 3%) and by banks (over 40% in contrast with 9%). For small issuers, bond holdings are extremely concentrated within the banking sector, implying a excessive diploma of publicity to banking shocks. These info counsel that agency-investor matching occurs. Overall, the landscape of company debt financing has modified significantly over the past 15 years, with many more firms exposed to market fluctuations. Firms’ increased entry to credit score and their diminished reliance on the banking sector is nicely documented. However, the impacts of this shift on monetary stability and potential interactions with regulation are but to be absolutely understood. The evidence of heterogenous bond investor composition across different types of issuer is a primary step towards constructing a extra complete framework around bond credit provide and its macroeconomic implications.