Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/175725 
Year of Publication: 
2017
Series/Report no.: 
ECB Working Paper No. 2101
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
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 2005-2014, 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.
Subjects: 
Corporate debt
leverage
debt overhang
investment
threshold model
JEL: 
E22
F34
G31
G32
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-2823-6
Document Type: 
Working Paper

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