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

Arbeitspapier

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.

Object Details

• ISBN: 978-92-899-2823-6
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 2101

Classification and Topics

• Classification: Wirtschaft ; Investment; Capital; Intangible Capital; Capacity ; International Lending and Debt Problems ; Capital Budgeting; Fixed Investment and Inventory Studies; Capacity ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
• Subject: Corporate debt ; leverage ; debt overhang ; investment ; threshold model

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gebauer, Stefan ; Setzer, Ralph ; Westphal, Andreas
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2017

Further information

• DOI: doi:10.2866/987849
• Handle: http://hdl.handle.net/10419/175725
• Last update: 10.03.2025, 11:43 AM CET