EconPapers    
Economics at your fingertips  
 

Real Effects of Financial Distress: The Role of Heterogeneity

Sudipto Karmakar and Francisco Buera

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: What are the heterogeneous effects of financial shocks on firms' behavior? This paper evaluates and answers this question from both an empirical and a theoretical perspective. Using micro data from Portugal during the sovereign debt crisis, starting in 2010, we document that highly leveraged firms and firms that had a larger share of short-term debt on their balance sheets contracted more in the aftermath of a financial shock. We use a standard model to analyze the conditions under which leverage and debt maturity determine the sensitivity of firms' investment decisions to financial shocks. We show that the presence of long-term investment projects and frictions to the issuance of long-term debt are needed for the model to rationalize the empirical findings. We conclude that the differential responses of firms to a financial shock do not provide unambiguous information to identify these shocks. Rather, we argue that this information should be use to test for the relevance of important model assumptions.

JEL-codes: E44 F34 G12 H63 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
https://www.bportugal.pt/sites/default/files/anexos/papers/wp201806.pdf

Related works:
Working Paper: Real Effects of Financial Distress: The Role of Heterogeneity (2018) Downloads
Working Paper: Real Effects of Financial Distress: The Role of Heterogeneity (2017) Downloads
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:ptu:wpaper:w201806

Access Statistics for this paper

More papers in Working Papers from Banco de Portugal, Economics and Research Department Contact information at EDIRC.
Bibliographic data for series maintained by DEE-NTD ().

 
Page updated 2019-04-25
Handle: RePEc:ptu:wpaper:w201806