Negative Interest Rates, COVID-19, and the Finances of Listed Euro Firms

Negative interest rates are a new phenomenon. Short-term deposit rates of the European Central Banks became negative in 2014 and sovereign debts of highly solvent countries followed. This paper measures the effect of short-term rates on short-term financial variables and of long-term rates on structural variables of listed euro firms. I thereby test if negative rates have an additional effect. I find that liquidity ratios and creditors ratios significantly decline if short-term rates fall, while negative ECB rates reduce liquidity ratios by an additional 0.6 percentage points. Declining long-term German government bond yields increase non-liquid assets significantly, and negative yields per se increase these assets in addition by 4.5%. The latter positive effects arise from the southern-euro countries and Finland and France. For the first full COVID-19 year (2020), the investments in non-liquid assets were 7.6% smaller. This will have contributed to the fact that -despite the corona crisis- the liquidity ratios increased by 2.3 percentage points. Similar COVID-19 effects are also found for small and large firms, for different sectors, and in most of the euro countries.