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

Stefan Gebauer, Ralph Setzer () and Andreas Westphal

No 2101, Working Paper Series from European Central Bank

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 2005-2014, 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. JEL Classification: E22, F34, G31, G32

Keywords: corporate debt; debt overhang; investment; leverage; threshold model (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec
Date: 2017-09
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20172101

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