Leverage Shocks: Firm-Level Evidence on Debt Overhang and Investment

Serhan Cevik and Miryugin Fedor ()
Additional contact information
Miryugin Fedor: George Washington University, Washington, DC, USA

Review of Economics, 2022, vol. 73, issue 1, 79-101

Abstract: The global economy is in the midst of an unprecedented slump caused by the coronavirus pandemic. This systemic risk like no other at a time of record-breaking debt levels, especially among non-financial firms across the world, could exacerbate corporate vulnerabilities, deepen macro-financial instability, and cause long-lasting damage to economic potential. Using data on more than 3.7 million non-financial firms from 58 countries during the period 1997–2019, we develop a two-pronged approach to investigate the relationship between corporate leverage and fixed investment spending. The empirical analysis, robust to a battery of sensitivity checks, confirm corporate leverage is highly vulnerable to disruptions in profitability and cash flow at the firm level and economic growth at the aggregate level. These findings imply that corporate debt overhang could become a strenuous burden on non-financial firms, especially if the COVID-19 pandemic lingers and global downturn becomes protracted.

Keywords: corporate debt; debt overhang; firm-level; fixed investment; leverage (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://doi.org/10.1515/roe-2021-0026 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
Working Paper: Leverage Shocks: Firm-Level Evidence on Debt Overhang and Investment (2020)
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:lus:reveco:v:73:y:2022:i:1:p:79-101:n:4

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/roe/html

DOI: 10.1515/roe-2021-0026

Access Statistics for this article

Review of Economics is currently edited by Michael Berlemann

More articles in Review of Economics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().