Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/228845 
Year of Publication: 
2020
Series/Report no.: 
ECONtribute Discussion Paper No. 042
Publisher: 
University of Bonn and University of Cologne, Reinhard Selten Institute (RSI), Bonn and Cologne
Abstract: 
With business leverage at record levels, the effects of corporate debt overhang on growth and investment have become a prominent concern. In this paper, we study the effects of corporate debt overhang based on long-run cross-country data covering the nearuniverse of modern business cycles. We show that business credit booms typically do not leave a lasting imprint on the macroeconomy. Quantile local projections indicate that business credit booms do not affect the economy's tail risks either. Yet in line with theory, we find that the economic costs of corporate debt booms rise when inefficient debt restructuring and liquidation impede the resolution of corporate financial distress and make it more likely that corporate zombies creep along.
Subjects: 
corporate debt
business cycles
local projections
JEL: 
E44
G32
G33
N20
Document Type: 
Working Paper

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