Has the ECB's Monetary Policy Prompted Companies to Invest or Pay Dividends?

Abstract

This paper focuses on the influence of the European Central Bank's (ECB) monetary policies on non-financial firms. It sheds light on non-financial firms' decisions regarding leverage, and on how the ECB's conventional and unconventional policies may have affected them. The paper also examines how these policies influenced non-financial firms' decisions on capital allocation - primarily capital spending and shareholder distribution (for example, dividends and share repurchases). We use an exhaustive and unique dataset comprised of income statements and balance sheets of leading non-financial firms operating in the European Economic and Monetary Union (EMU). The main results suggest that ECB's monetary policies have encouraged firms to raise their debt burden, especially after the global recession of 2008. Finally, the ECB's policies, especially after 2011, also seem to have led non-financial firms to allocate more resources not just to capital spending but to shareholder distribution as well.