Property debt overhang: the case of Irish SMEs

Fergal McCann () and Tara McIndoe-Calder ()

No 14/RT/14, Research Technical Papers from Central Bank of Ireland

Abstract: The detrimental impacts of credit booms, property booms and firm over-leverage are well-established in a growing literature highlighting their effects on household consump- tion, firm investment and economic growth. The link between credit-fuelled property market booms and firms' ability to service their debts has however up to this point not been studied. Using a unique data set on the property and "core" enterprise debts of Irish Small and Medium Enterprises (SMEs) at December 2013, we highlight the extent to which Irish non-real-estate SMEs have borrowed for property investment purposes. We show that the existence of such property-related debts is a crucial determinant of the probability of SME loan default, suggesting a large property-related debt overhang for these firms. We extend the analysis by showing that the intensity of firms' property- related borrowings has an additional impact on the probability of loan default. In doing so, we highlight an additional channel through which credit-driven property booms can have long-lasting harmful effects on economic growth prospects.

Keywords: Property markets; SMEs; credit risk; firm leverage. (search for similar items in EconPapers)
Date: 2014-10
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-eur, nep-sbm and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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