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Quantitative easing could improve market liquidity through many channels such as relaxing bank funding constraints, increasing risk appetite, and facilitating trades. However, it can also reduce market liquidity when the increase in the central bank’s holdings of certain securities leads to a scarcity of those securities and hence higher search costs in the market. Using security-level data from the Japanese government bond (JGB) market, this paper finds evidence of the scarcity (flow) effects of the Bank of Japan (BOJ)’s JGB purchases on market liquidity. Moreover, we also find evidence that such scarcity effects could dominate other effects when the share of the BOJ’s holdings exceeds certain thresholds, suggesting that the flow effects may also depend on the stock.

Scarcity --- Deficiency --- Shortages --- Japan --- Economic conditions. --- Banks and Banking --- Finance: General --- Investments: Bonds --- Money and Monetary Policy --- 'Panel Data Models --- Spatio-temporal Models' --- Single Equation Models: Single Variables: Instrumental Variables (IFV) Estimation --- Quantitative Policy Modeling --- Monetary Policy --- Central Banks and Their Policies --- General Financial Markets: General (includes Measurement and Data) --- Information and Market Efficiency --- Event Studies --- Portfolio Choice --- Investment Decisions --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Finance --- Banking --- Monetary economics --- Investment & securities --- Liquidity --- Securities markets --- Unconventional monetary policies --- Bonds --- Asset and liability management --- Financial markets --- Monetary policy --- Financial institutions --- Sovereign bonds --- Economics --- Banks and banking --- Capital market

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We study 1,400 UK syndicated loans, together with the financial history of the lead bank and the borrowing firm. We interpret abnormal equity returns around loan announcements as the value of the lending relationship to the firm. We find that: (i) Consistent with previous evidence, the value of lending is higher when the firm is riskier or more opaque, suggesting that it primarily reflects the lead bank’s screening and monitoring activities. (ii) As a bank becomes larger, more profitable or more capitalized, the value of its loans first increases and then decreases. The largest, most capitalised or most profitable banks do not give the most valuable loans. (iii) Firms which receive low-value loans are more likely to experience low profitability and financial distress during the lending relationship. By relating the state of bank balance sheets to borrower performance, we offer a new angle to evaluate the impact of financial conditions on the real economy.

Loans. --- Financial statements. --- Balance sheets --- Corporate financial statements --- Earnings statements --- Financial reports --- Income statements --- Operating statements --- Profit and loss statements --- Statements, Financial --- Accounting --- Bookkeeping --- Business records --- Corporation reports --- Borrowing --- Lending --- Loans for consumption --- Finance --- Credit --- Investments --- Loans --- Financial statements --- E-books --- Banks and Banking --- Investments: Stocks --- Money and Monetary Policy --- Industries: Financial Services --- Financial Markets and the Macroeconomy --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Information and Market Efficiency --- Event Studies --- Public Administration --- Public Sector Accounting and Audits --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Banking --- Financial reporting, financial statements --- Monetary economics --- Investment & securities --- Bank credit --- Stocks --- Financial institutions --- Public financial management (PFM) --- Money --- Syndicated loans --- Banks and banking --- Finance, Public --- United Kingdom