Debt Overhang, Rollover Risk, and Corporate Investment: Evidence from the European Crisis
By Sebnem Kalemli‐ozcan, Luc Laeven, David Moreno. Social Science Research Network, 2018
222 citations recorded by the source corpus.
We quantify the role of financial leverage behind the sluggish post-crisis investment performance of European firms. We use a cross-country firm-bank matched database to identify separate roles for firm leverage, bank balance sheet weaknesses arising from sovereign risk, and aggregate demand conditions. We find that firms entering the crisis with higher debt levels reduce their investment more after the crisis. This negative effect is stronger for firms holding short-term debt in countries whose banks were weak due to sovereign stress, consistent with rollover risk being an important channel influencing investment. The negative effect of firm leverage on investment is also persistent for several years after the shock in the countries with sovereign stress. The corporate leverage channel can explain about 20% of the cumulative decline in aggregate private sector investment over the crisis period.
Subfields: Economics and Econometrics, Finance, Strategy and Management
View Paper: https://www.semanticscholar.org/paper/b113c066f0179d7e318c6c27d6b7e8cbe8825e0e
Citations in the corpus
- Breaking the Shackles: Zombie Firms, Weak Banks and Depressed Restructuring in Europe (2017, unknown): “We adopt the same data cleaning and harmonization procedures as Adalet McGowan et al. (2018), who closely follow the suggestions of Gal (2013), Kalemli-Ozcan et al. (2018) and Andrews et al. (2016).”
- How Did COVID-19 Affect Firms’ Access to Public Capital Markets? (2020, unknown): “4For an analysis of how various measures of resilience to social distancing affects asset prices, see Pagano et al. (2020). regressions for firms operating in retail trade, restaurant, hotel, and transportation industries.”
- Is there a zero lower bound? The effects of negative policy rates on banks and firms (2019, unknown): “As noted by Giannetti and Ongena (2012) and Kalemli-Ozcan, Laeven, and Moreno (2018), Orbis obtains information on firms’ main banks from Kompass, which collects data using information provided by chambers of commerce and firm registries, but also conducts phone interviews with firm representatives.”