Unreal Investments : How cheap credit is used when rates are already low, and opportunities for financial investments are present.

Abstract: This study explores the possibility that cheep credit, provided to firms when profit opportunities on real investments are low, and when opportunities of financial investments are present, will loose some of it’s stimulus effect due to a crowding out effect of financial investments on real investments. Analyzing the changes in debt, and it’s channels of use during the recession of the covid19 pandemic, between firms with a history of stock buybacks, and firms without such a history, the study finds a significantly higher increase in debt for firms with a history of doing stock buybacks. The study concludes that this effect is due to firms finding financial uses of more cheap credit, which does crowd out real investments.