Paper Spotlight: How Did COVID-19 Affect Firms’ Access to Public Capital Markets?

Michael Halling

Jin Yu

Josef Zechner









Sharp recessions and prolonged market stress periods are accompanied by drying up of equity and corporate bond issues, a big challenge for firms because the need for capital is very high during such periods. Disentangling supply-driven from demand-driven reasons is very problematic. In this paper, Michael Halling, Jin Yu, and Josef Zechner use the ongoing COVID-19 pandemic, a truly exogenous demand shock, to investigate the extent to which financial markets provide external debt and equity capital to the corporate sector. The paper starts with a surprising result: corporate bond issues increased substantially since the onset of the pandemic crisis both for bonds rated A or higher as well as for bonds rated BBB or lower. Another surprising result: firms chose longer maturities during the crisis, in contrast to earlier results reported in the literature that suggest a tendency to issue shorter-term debt during crises. The paper also identifies firm characteristics that determine the cross-sectional differences in firms’ access to financial markets, in terms of maturities, spreads, and ratings. This paper is coming soon to advance access.

Spotlight by Andrew Ellul
Photos courtesy of Michael Halling, Jin Yu, and Josef Zechner

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