Negative Interest Rates, COVID-19, and the Finances of Listed Euro Firms
DOI:
https://doi.org/10.29015/cerem.930Keywords:
Negative interest rates, European Central Bank, German government bond yields, short-term firm financing, liquidity ratios, debtor ratios, creditor ratios, dividends, long-term borrowing cash flows, non-liquid investments, corona crisis, COVID-19Abstract
Aim: The paper measures the impact of negative interest rates on listed firms in the original euro zone countries. It also measures the impact of the first COVID-19 year.
Design / research methods: The paper uses panel data to measure the influence of the short-term ECB deposit rate and the 10-years German bond yield on short-term and long-term firm variables. Cross section fixed effects are applied to first differences and dummy variables. For liquidity and non-liquid assets the effects are also measured for small and large companies, for sectors, and for countries.
Conclusions / findings: Corporate liquidity ratios and creditor ratios decline when short-term ECB-rates fall. If ECB rates are negative, liquidity ratios are further reduced by 0.6 percentage points. Declining long-term German government bond yields increase non-liquid assets, while negative yields boost these assets by 4.5% extra. In the first COVID-19 year, the investments in non-liquid assets were 7.6% smaller, while liquidity ratios increased by 2.3 percentage points.
Originality / value of the article: Papers on the influence of negative interest rates and of COVID-19 on European firms are unavailable. This makes the paper relevant for firm managers and policy makers and a benchmark for future research.
Implications of the research: Because the issues addressed are new, further research is valuable. One may think of comparable studies for different countries. Many other suggestions for further research are given in the conclusions.
References
Apergis N., Christou Ch., Gupta R. (2018), Convergence in income inequality. Further evidence from the club clustering methodology across states in the U.S., “International Advances in Economic Research”, vol. 24 no. 2, pp. 147–161.
Altavilla C., Burlon L., Giannetti M., Holton S. (2021), Is There a Zero Lower Bound? The Effects of Negative Policy Rates on Banks and Firms, “Journal of Financial Economics” (2021), https://doi.org/10.1016/j.jfineco.2021.06.032 [01.07.2021].
Antolin P., Schich S. Yermo J. (2011), The Economic Impact of Protracted Low Interest Rates on Pension Funds and Insurance Companies, “OECD Journal: Financial Market Trends”, https://doi.org/10.1787/fmt-2011-5kg55qw0m56l [02.12.2021].
Borio C.E.V., Disyatat P., Juselius M., Rungcharoenkitkul P. (2017) Why So Low for So Long? A Long-Term View of Real Interest Rates, BIS Working Paper No. 685, https://ssrn.com/abstract=3090799 [01.07.2021].
Brodeur A., Gray D., Islam A., Bhuiyan S. (2021), A Literature Review of the Economics of COVID-19, “Journal of Economic Surveys”, vol. 35 no. 4, pp. 1007–1044.
Bromley S. (2020), Negative Interest Rates: Could You Be Paid to Take out a Business Loan?, https://www.simplybusiness.co.uk/knowledge/articles/2020/11/what-are-negative-interest-rates-for-small-business/, November 20 [13.07.2021].
Central Bureau of Statistics (2020), https://www.cbs.nl/nl-nl/longread/diversen/2020/effect-van-de-coronacrisis-op-de-nederlandse-en-europese-overheidsfinancien/rentelasten-blijven-historisch-laag [9.07.2021].
Donthu N., Gustafsson A. (2020), Effects of COVID-19 on Business and Research, “Journal of Business Research”, vol. 117, pp. 284–289, https://doi.org/10.1016/j.jbusres.2020.06.008 [03.12.2021].
Elnahas A., Kim D., Kim I. (2018), Natural Disaster Risk and Corporate Leverage, October 1, http://dx.doi.org/10.2139/ssrn [03.12.2021].
Frederick S., Loewenstein G., O’Donoghue T. (2002), Time Discounting and Time Preference: A Critical Review, “Journal of Economic Literature”, vol. 40 no. 2, pp. 351–401, https://doi.org/10.1257/002205102320161311 [03.12.2021].
Gao X., Whited T.M., Zhang N. (2021), Corporate Money Demand, “The Review of Financial Studies”, vol. 34 no. 4, pp. 1834–1866, https://doi.org/10.1093/rfs/hhaa083 [03.12.2021].
Gordon M.J. (1959), Dividends, Earnings, and Stock Prices, “The Review of Economics and Statistics”, vol. 41 part 1, pp. 99–105.
Jensen C.M., Spange M. (2015), Interest Rate Passthrough and the Demand for Cash at Negative Interest Rates, “Danmarks Nationalbank Monetary Review”, 2nd quarter, pp. 1–12, https://www.nationalbanken.dk/en/publications/Documents/2015/06/Interest%20Rate%20Rass-through%20and%20the%20Demand%20for%20Cash%20at%20Negative%20Interest%20Rates.pdf [03.12.2021].
Jørgensen A., Risbjerg L. (2012), Negative Interest Rates, “Danmarks Nationalbank Monetary Review”, 3rd Quarter, Part 1, pp. 59–72, https://www.nationalbanken.dk/en/publications/Documents/2012/10/MON3Q_P1_2012_Negative%20Interest%20Rates.pdf [03.12.2021].
Karunakar R. (2020), Negative Real Yields on Sovereign Debt Here to Stay,
Krogstrup S., Kuchler A., Spange M. (2020), Negative Interest Rates: The Danish Experience, https://voxeu.org/article/negative-interest-rates-danish-experience [09.07.2021].
Newell R.G., Pizer W.A. (2003), Discounting the Distant Future: How Much Do Uncertain Rates Increase Valuations?, “Journal of Environmental Economics and Management”, vol. 46, pp. 52–71, https://doi.org/10.1016/S0095-0696(02)00031-1 [03.12.2021].
Perold A.F. (2012), Negative Real Interest Rates: The Conundrum for Investment and Spending Policies, “Financial Analysts Journal”, vol. 68 no. 2, pp. 6–12, https://www.jstor.org/stable/23102596 [03.12.2021].
Schmelzing P. (2019), Eight Centuries of Global Real Interest Rates, R-G, and the ‘Suprasecular’ Decline, 1311–2018, http://dx.doi.org/10.2139/ssrn.3485734 [03.12.2021].
Shirai S., Sugandi E.A. (2019), Growing Global Demand for Cash?, “International Business Research”, vol. 12 no. 12, pp. 74–92, https://doi.org/10.5539/ibr.v12n12p74 [03.12.2021].
Thornton D.L. (1999), Nominal Interest Rates: Less than Zero?, The Federal Reserve Bank of St. Louis, Monetary Trends, https://econpapers.repec.org/scripts/redir.pf?u=https%3A%2F%2Ffiles.stlouisfed.org%2Ffiles%2Fhtdocs%2Fdatatrends%2Fpdfs%2Fmt%2F19990101%2Fcover.pdf;h=repec:fip:fedlmt:y:1999:i:jan [13.07.2021].
Tokic D. (2017), Negative Interest Rates: Causes and Consequences, “Journal of Asset Management”, vol. 18, pp. 243–254, https://doi.org/10.1057/s41260-016-0035-2 [03.12.2021].
Ulate M. (2019), Going Negative at the Zero Lower Bound: The Effects of Negative Nominal Interest Rates, Federal Reserve Bank of San Francisco Working Paper 2019–21, https://doi.org/10.24148/wp2019-21 [03.12.2021].
Downloads
Published
Issue
Section
License
The aim of CEREM is to make scientific work available in accordance with the principle of open access. The rules mentioned below are important, as they enable CEREM and its publisher, the WSB Merito University in Wroclaw, to distribute the scientific work to a wide public while complying with specific legal requirements, at the same time protecting the rights of the authors.
The author transfers to the WSB Merito University in Wroclaw, free of charge and without territorial limitations, with all proprietary copyrights to the said piece of work in the understanding of the act of 4th February 1994 on copyrights and derivative rights (Journal of Laws of 1994, no. 24, item 83, as amended) on an exclusivity basis, i.e. the rights to:
1. Make the piece of work in question available via the Digital Library established by the WSB Merito University in Wroclaw.
2. Produce, record and reproduce in multiple copies the piece of work using any techniques whatsoever, including printing, reprography, magnetic recording and digital processing, and particularly its reproduction by recording on CDs and similar data carriers,
3. Use fragments of the piece of work for promotional purposes in publications, promotional materials, the Internet and Intranet type networks managed by the WSB Merito University in Wroclaw.
4. Store the piece of work into computer databases managed by the WSB Merito University in Wroclaw.
5. Copy and reproduce the piece of work using photo-mechanic technologies other than those commonly known at the time of the signature hereof (photocopies, Xerox copies etc.),
6. Process the piece of work, transferring it into an electronic form, and distribute it on the Internet without limitations.
