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

Sebnem Kalemli-Ozcan, Luc Laeven and David Moreno

No 24555, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E22 E32 E44 F34 F36 G32 (search for similar items in EconPapers)
Date: 2018-04
New Economics Papers: this item is included in nep-ban, nep-big, nep-eec and nep-mac
Note: EFG IFM ME
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Citations: View citations in EconPapers (66)

Published as Şebnem Kalemli-Özcan & Luc Laeven & David Moreno, 2022. "Debt Overhang, Rollover Risk, and Corporate Investment: Evidence from the European Crisis," Journal of the European Economic Association, vol 20(6), pages 2353-2395.

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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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