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Corporate Debt and Investment: A Firm-Level Analysis for Stressed Euro Area Countries

Aufsätze referiert extern - Web of Science

Stefan Gebauer, Ralph Setzer, Andreas Westphal

In: Journal of International Money and Finance 80 (2018), S. 112-130

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 to 2014, we postulate a non-linear corporate leverage-investment relationship and derivethresholds 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, Leverage, Debt overhang, Investment, Threshold model
DOI:
https://doi.org/10.1016/j.jimonfin.2018.04.009

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