The Review of Corporate Finance Studies Vol. 12 No. 2 2023

Can Central Banks Boost Corporate Investment? Evidence from ECB Liquidity Injections

Stine Louise von Rüden¹; Marti G. Subrahmanyam^2,3; Dragon Yongjun Tang⁴; Sarah Qian Wang⁵

¹ Danmarks Nationalbank , Denmark · ² Stern School of Business, New York University , USA and , China · ³ NYU Shanghai , USA and , China · ⁴ HKU Business School, University of Hong Kong , Hong Kong · ⁵ Warwick Business School, University of Warwick , UK

Abstract

Liquidity injections by central banks have become frequent and massive, but their real effects on corporate investment remain unclear. We examine the longer-term refinancing operations (LTROs) of the European Central Bank (ECB) during the eurozone sovereign crisis and show that greater LTRO funding to banks is associated with lower corporate investment. Riskier banks received funds through the LTROs and subsequently increased their holdings of risky sovereign debt. Corporate investment reductions are associated with these banks. Further, concurrent fiscal and regulatory policies impeded the effectiveness of the ECB liquidity injections. Our findings identify the contributing factors for these failures of monetary policy.

DOI

10.1093/rcfs/cfad006

Volume

12

Issue

2

Pages

402-442

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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