Investment Response to Monetary Policy in a Low Interest Rate Environment: Evidence from the ECB's Corporate QE

We study how an easing in corporate bond funding conditions affect the asset structure of firms fixed assets. This paper employs ECB's Corporate Sector Purchase Program as a quasi-natural experiment that reduces bond yields for firms eligible to ECB purchases. We identify eligible firms using information on their bond ratings. Using consolidated balance sheet information on non-financial firms in France, we find that firms increase investment expenses but only to replace existing assets, whether tangible and intangible, instead of investing in new equipment to grow in scale. This replacement is however not homogeneous across asset classes, since intangible assets increase in importance relative to tangible ones. The shift towards intangible assets is stronger for firms with a BBB rating than for safer firms (AAA-A rating). This suggest that while BBB rated firms were to some extent constraint in their funding, they do not use the proceeding to reinforce the collateral value of their assets. These effects are robust to the inclusion of several fixed effects. We conclude that an easier access to market debt can have an effect on the mix of fixed assets used by firms to produce. This raises questions as to whether firms eligible to CSPP purchases increased their productivity since new equipment can be more efficient than the deprecated ones.