Matteo Crosignani

Working Papers

Exorbitant Privilege? Quantitative Easing and the Bond Market Subsidy of Prospective Fallen Angels
Co-authors: Viral Acharya, Ryan Banerjee, Tim Eisert, Renée Spigt, May 2023
AFA 2022 · EFA 2022 · NBER SI EFEL 2021 ·  Oxford Macro-Finance 2021 · NBER SI CF/RISK 2022
Paper · BibTeX · Liberty Street · FT · Bloomberg

Abstract: We document capital misallocation in the U.S. investment-grade (IG) corporate bond market, driven by quantitative easing (QE). Prospective fallen angels—risky firms just above the IG cutoff—enjoyed subsidized bond financing in 2009-19. This effect is driven by prolonged cumulative Fed purchases of securities inducing long-duration IG-focused investors to rebalance their portfolios towards higher-yielding IG bonds. The benefiting firms (i) exploited the sluggish downward adjustment of credit ratings after M&A to finance risky acquisitions with bond issuances, (ii) increased market share affecting competitors’ employment and investment, but (iii) suffered severe downgrades at the onset of the pandemic.

Stakeholders’ Aversion to Inequality and Bank Lending to Underserved Borrowers
Co-author: Hanh Le
MoFiR 2023

Abstract: We find that banks differ in their propensity to lend to underserved borrowers based on their stakeholders’ aversion to inequality. Using mortgage application data collected under the Home Mortgage Disclosure Act, we (i) document substantial cross-sectional heterogeneity in banks’ willingness to lend to underserved borrowers and (ii) find that banks with more inequality-averse clientele and executives are more likely to lend to non-white borrowers and borrowers in high-minority and low-income areas. This higher propensity (i) responds to the saliency of stakeholders’ inequality aversion, (ii) is rewarded with deposits by inequality-averse depositors, and (iii) does not predict worse ex-post loan performance.