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Aggregate Implications of Corporate Bond Holdings by Nonfinancial Firms

Author

Listed:
  • Miguel H. Ferreira

    (Queen Mary University of London, School of Economics and Finance)

Abstract
This paper explores the impact of risky asset holdings by U.S. nonfinancial firms. From the early 1990s to 2017, the share of risky securities surged from 28% to over 40% of firms’ financial assets. Using a business-cycle heterogeneous firms model, I show that declining real interest rates since the 1980s increased the risk premium, driving the increase in risky asset holdings. The model predicts that firms with higher exposure to risky assets experience an investment decline up to 50% more pronounced during large shocks, empirically validated by analyzing the Great Financial Crisis.

Suggested Citation

  • Miguel H. Ferreira, 2023. "Aggregate Implications of Corporate Bond Holdings by Nonfinancial Firms," Working Papers 967, Queen Mary University of London, School of Economics and Finance.
    • Handle: RePEc:qmw:qmwecw:967
    as

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    File URL: https://www.qmul.ac.uk/sef/media/econ/research/workingpapers/wp967.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Risky assets; corporate bonds; firm heterogeneity; firm dynamics; business-cycle;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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