Financial frictions and corporate investment in bad times. Who cut back most?

Immacolata Marino, Brunella Bruno () and Alexandra D'Onofrio

No 12003, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We explore the differential impact of leverage and debt maturity structure on investment in European firms belonging to different countries and industries during the financial and sovereign crisis period. We find that in crisis years (i) leverage exerts a strong and negative effect on the level of investment and (ii) firms with more long-term debt invest less. We also uncover heterogeneous reactions to the crisis due to the level of debt and its maturity by sorting firms by country-specific and firm-specific characteristics. We find that firms who cut back most investment in crisis years (conditional on the level of leverage and maturity) (i) are located in Eurozone periphery countries, and (ii) are featured by a small-scale. Factors that help firms alleviate financial frictions and shield investment are being able to rely on multiple bank relationships and the ability to generate internal resources (cash flows). We find no evidence of a positive nexus between cash and investment, and only little evidence of a positive effect on investment of access to capital markets, to mitigate the negative impact of debt in crisis years.

Keywords: investment; Leverage; Long-term debt; Crisis (search for similar items in EconPapers)
Date: 2017-04
New Economics Papers: this item is included in nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://cepr.org/publications/DP12003 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Financial Frictions and Corporate Investment in Bad Times. Who Cut Back Most? (2017)
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:cpr:ceprdp:12003

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP12003

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().