Too Big to Fail? Effects of Quantitative Easing on Large Firms

In this paper, we investigate whether the liquidity support from the 2008 quantitative easing (QE) influenced the capital structures of large firms. We find that large firms generally increased their proportions of debt financing and leverage ratios during QE. Among small firms, only those with prior banking relationships received any liquidity support. The other smaller firms without banking relationships had higher default probabilities during QE that might have been due to the lack of liquidity support. Furthermore, large firms had lower operating performance, less efficiency, but higher managerial compensation during QE that indicated the inefficiency in allocating funding through QE