Macro-Financial Implications of Corporate (De)Leveraging in the Euro Area Periphery

Manuela Goretti and Marcos Souto

No 2013/154, IMF Working Papers from International Monetary Fund

Abstract: High corporate indebtedness can pose an important threat to the adjustment processes in some of the Euro area periphery countries, through its drag on investment as well as the possible migration of private sector losses to the sovereign balance sheet. This paper examines the macroeconomic implications of corporate debt overhang in recent years, confirming empirical evidence in the literature on the relationship between a firm’s balance sheet position and its investment choices, especially beyond certain threshold levels. Building on an event study of past crisis experiences with corporate deleveraging, it also discusses the expected macro-financial impact of the ongoing deleveraging processes in these countries, presenting available policy options to facilitate an orderly balance-sheet adjustment and support a return to productivity and growth.

Keywords: WP; firm; capital structure; net; balance sheet indicator; Corporate Investment; Debt overhang; Deleveraging; Crisis; Euro Area; investment decision; investment-to-capital ratio; funding option; firms' ability; Financial statements; Debt burden; Debt restructuring; East Asia; Global; Europe (search for similar items in EconPapers)
Pages: 24
Date: 2013-06-26
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=40712 (application/pdf)

Related works:
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:imf:imfwpa:2013/154

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().