Debt Overhang, Rollover Risk, and Corporate Investment: Evidence from the European Crisis

Kalemli-Özcan, Sebnem, Luc Laeven and David Moreno

No 13336, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We quantify the role of financial leverage behind the sluggish post-crisis investment performance of European firms. We use a cross-country firm-bank matched database to identify separate roles for firm leverage, bank balance sheet weaknesses arising from sovereign risk, and aggregate demand conditions. We find that firms with higher debt levels reduce their investment more after the crisis. This negative effect is stronger for firms holding short-term debt in countries with sovereign stress, consistent with rollover risk being an important channel influencing investment. The negative effect of firm leverage on investment is persistent for several years after the shock in the countries with sovereign stress. The corporate leverage channel can explain 40 percent of the cumulative decline in aggregate investment over four years after the crisis.

Keywords: Firm investment; Debt maturity; Rollover risk; Bank-sovereign nexus (search for similar items in EconPapers)
JEL-codes: E0 F0 (search for similar items in EconPapers)
Date: 2018-11
New Economics Papers: this item is included in nep-acc, nep-bec, nep-cfn, nep-eec, nep-fdg and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (41)

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Related works:
Journal Article: Debt Overhang, Rollover Risk, and Corporate Investment: Evidence from the European Crisis (2022)
Working Paper: Debt overhang, rollover risk, and corporate investment: evidence from the European crisis (2019)
Working Paper: Debt Overhang, Rollover Risk, and Corporate Investment: Evidence from the European Crisis (2018)
Working Paper: Debt Overhang, Rollover Risk, and Corporate Investment: Evidence from the European Crisis (2018)
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