Corporate debt and investment: A firm-level analysis for stressed euro area countries

Stefan Gebauer, Ralph Setzer and Andreas Westphal

Journal of International Money and Finance, 2018, vol. 86, issue C, 112-130

Abstract: This paper investigates the link between corporate debt and investment for a group of five peripheral euro area countries. Using firm-level data from 2005 to 2014, we postulate a non-linear corporate leverage-investment relationship and derive thresholds beyond which leverage has a negative and significant impact on investment. The investment sensitivity of debt increased after 2008 when financial distress intensified and firms had a lower capacity to finance investment from internal sources of funds. Our results also suggest that even moderate levels of debt can exert a negative influence on investment for smaller firms or when profitability is low.

Keywords: Corporate debt; Leverage; Debt overhang; Investment; Threshold model (search for similar items in EconPapers)
JEL-codes: E22 F34 G31 G32 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (42)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0261560618302419
Full text for ScienceDirect subscribers only

Related works:
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:eee:jimfin:v:86:y:2018:i:c:p:112-130

DOI: 10.1016/j.jimonfin.2018.04.009

Access Statistics for this article

Journal of International Money and Finance is currently edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().