Corporate Balance Sheet Restructuring and Investment in the Euro Area

Albert Jaeger

No 2003/117, IMF Working Papers from International Monetary Fund

Abstract: The recent boom-bust cycle in the euro area's equity valuations has left nonfinancial corporations saddled with a legacy of high debt or leverage. Models of corporate investment behavior based on imperfect capital markets predict that highly leveraged balance sheets can act as a brake on investment spending. The paper's empirical analysis suggests that leverage effects on corporate investment can be substantial and persistent, particularly if leverage exceeds threshold values.

Keywords: WP; investment; financial asset; financing; equity; Corporate investment and financing; business cycle; forecasting; equity valuation; investment boom; investment-capital ratio; balance sheet restructuring; equity investment; debt-equity mix; cost of capital; investment opportunity; Stocks; Business enterprises; Corporate investment; Financial statements; Corporate finance; Global (search for similar items in EconPapers)
Pages: 24
Date: 2003-06-01
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Citations: View citations in EconPapers (10)

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