How Did COVID-19 Affect Firms' Access to Public Capital Markets?

Area of Science:

• Finance
• Economics
• Corporate Finance

Background:

• The COVID-19 pandemic significantly disrupted global financial markets.
• Understanding corporate financing decisions during crises is crucial for economic stability.

Purpose of the Study:

• To analyze changes in corporate bond and equity issuance during the COVID-19 crisis.
• To examine the determinants of corporate bond spreads during the pandemic compared to normal times.

Main Methods:

• Analysis of bond and equity issuance data from calendar week 12 (March 16-20) onwards.
• Comparison of bond maturities and spread determinants during the crisis versus pre-crisis periods.
• Examination of the role of asset tangibility in influencing corporate bond spreads.

Main Results:

• Bond issuance surged for all rating categories (A or higher, and BBB or lower).
• Bond maturities extended beyond pre-crisis levels and average normal times.
• Asset tangibility's effect on bond spreads reversed: negative in normal times, positive during COVID-19, especially in lockdown-affected industries.
• Equity issuance initially slowed but then accelerated; capital raised via equity was 5% of bond issuance.

Conclusions:

• The COVID-19 crisis led to significant shifts in corporate financing, with increased bond issuance and longer maturities.
• The relationship between asset tangibility and corporate bond spreads changed dramatically during the pandemic, highlighting asset inflexibility.
• Equity financing played a smaller role compared to debt financing during the crisis.