Does Quantitative Easing Stimulate Corporate Investment?

Yes, says Erasmo Giambona, professor of finance and Michael J. Falcone Chair in Real Estate, and colleagues in their recent paper in the Journal of Money, Credit, and Banking, the first to demonstrate this effect theoretically and empirically and to challenge previous theories. His co-authors are Rafael Matta, professor of finance at SKEMA Business School; Jose-Luis Peydro, professor of finance at Imperial College London; and Ye Wang, associate professor at the University of International Business and Economics.

In financial crises, the Federal Reserve usually lowers interest rates as much as possible to encourage borrowing and investment. During the Great Recession, for example, the Fed had cut rates to 0.17% by December 2008. Once interest rates approach zero, however, quantitative easing (QE) becomes one of the few tools the central bank has left.

Through QE, the Fed purchases massive amounts of mortgage-backed securities and U.S. Treasury bonds. This large-scale buying reduces the supply of safe assets in the market, pushing cautious investors like pension funds and insurance companies to seek other safe investments, including bonds sold by stable companies.

Using data from 2004 to 2011, the researchers showed that when demand for safe assets is strong, financially sound companies with bond market access can borrow at rates nearly as low as those of the U.S. government. Companies like Apple and Amazon belong to this select group. The cheap financing, in turn, allows them to put more money into long-term investments than companies without access to the bond market. The effect was larger for safer firms.

“We call this the corporate-bond lending channel,” Giambona said. “No one had really demonstrated this connection before.”

Contrary to past theory, the study also found that QE doesn’t simply change companies’ capital structure, that is, the proportion of money they raise from debt versus their own cash. “Previous thinking was that firms would just take the cheap money and do nothing, sit on their cash,” Giambona says. “Our theory innovation is showing that this doesn’t have to be the case.”

Giambona, E. (2025), Quantitative Easing, Investment, and Safe Assets: The Corporate-Bond Lending Channel (with Matta, R., Peydro, J.-L., Wang, Y.), Journal of Money, Credit, and Banking (forthcoming).