EconPapers    
Economics at your fingertips  
 

Sovereign Risk and Intangible Investment

Minjie Deng and Chang Liu
Additional contact information
Chang Liu: University of Rochester

Discussion Papers from Department of Economics, Simon Fraser University

Abstract: This paper measures the output and TFP costs of sovereign risk incorporating its impact on firm intangible investment. Using Italian firm-level data, we show that firms reallocated from intangible assets to tangible assets during the recent sovereign debt crisis. This asset reallocation is more pronounced among small firms and high-leverage firms. We build a sovereign default model incorporating both firm tangible and intangible investment to explain the empirical findings. In our model, sovereign risk deteriorates bank balance sheets, disrupting banks’ ability to finance firms. Firms with greater external financing needs are more exposed to sovereign risk. Facing tightening financial constraints, firms internalize that tangible assets can be used as collateral while intangibles cannot, thus reallocating resources towards tangible investment to offset tightening financial conditions. In a counterfactual analysis, we find that elevated sovereign risk explains 86% of the observed output losses and 72% of TFP losses during the 2011-2013 Italian sovereign debt crisis.

Date: 2021-12
New Economics Papers: this item is included in nep-acc, nep-cfn, nep-eec and nep-fdg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sfu.ca/repec-econ/sfu/sfudps/dp21-16.pdf (application/pdf)

Related works:
Journal Article: Sovereign risk and intangible investment (2024) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sfu:sfudps:dp21-16

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Discussion Papers from Department of Economics, Simon Fraser University Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, BC, V5A 1S6, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by Working Paper Coordinator ().

 
Page updated 2025-03-22
Handle: RePEc:sfu:sfudps:dp21-16