Did ECB Liquidity Injections Help the Real Economy?

In an attempt to boost the Eurozone economy, the European Central Bank (ECB) launched a plethora of unconventional monetary interventions since 2010. While the series of Longer-Term Refinancing Operations (LTROs) was among the most prominent of these, their efficacy, measured by their impact on corporate policies in the Eurozone, is an important but unanswered issue. We analyze a large panel of individual corporations across countries in the Eurozone, and find that non-financial corporations issued more long-term debt and hoarded more cash following the ECB liquidity injections. However, this increase in corporate liquidity was not employed in a productive manner, as corporations generally did not subsequently increase their investments or employment, regardless of their banking connections. The exceptions to this weak response were corporations in countries with corresponding accommodative fiscal policies such as tax cuts.