Balance Sheet Restructuring and Investment

Karen Mills, Steven Morling and Warren Tease

Australian Economic Review, 1994, vol. 27, issue 1, 83-100

Abstract: Abstract This article looks at the evolution of corporate balance sheets and investment over the past few years. We find that many companies have significantly improved their balance sheets in this time. Leverage has been reduced, and this, coupled with lower nominal interest rates, has improved the interest cover and cash flows of the corporate sector. For many firms, the process of balance sheet repair has proceeded a long way so that the extent to which the financial position of firms will impinge on investment is much lower than it was a few years ago. Looking further ahead, it appears that the rate of return to investing in capital is relatively high, at least when judged against the standards of earlier downturns. With the recovery picking up pace we should, therefore, see firms more inclined to expand their capital expenditure and less focused on financial restructuring.

Date: 1994
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