Corporate debt and investment: a firm analysis for stressed euro area countries
Stefan Gebauer (),
Ralph Setzer () and
No 2101, Working Paper Series from European Central Bank
This paper investigates the link between corporate debt and investment for a group of fi ve peripheral euro area countries. Using firm-level data from 2005-2014, we postulate a non-linear corporate leverage-investment relationship and derive thresholds beyond which leverage has a negative and signi ficant impact on investment. The investment sensitivity of debt increased after 2008 when financial distress intensifi ed and fi rms 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 pro fitability is low. JEL Classification: E22, F34, G31, G32
Keywords: corporate debt; debt overhang; investment; leverage; threshold model (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20172101
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