Do Firms Cater to Corporate QE? Evidence from the Bank of Japan’s Massive Corporate Bond Purchases

This paper documents a novel side effect of central bank corporate bond purchases with a tight maturity eligibility criterion. During the COVID-19 pandemic, the Federal Reserve and the Bank of Japan announced to conduct massive purchases of corporate bonds maturing in five years or less. This paper demonstrates that firms in Japan, but not in the U.S., have catered to the maturity-specific demand shock by shifting the maturity of new bond issues, plausibly due to the much larger size of the Bank of Japan’s actual purchases. Thus, this paper has important policy implications for central banks becoming significant buyers in non-government debt markets.