Leverage Shocks: Firm-Level Evidence on Debt Overhang and Investment - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Leverage Shocks: Firm-Level Evidence on Debt Overhang and Investment write by Mr.Serhan Cevik. This book was released on 2020-12-18. Leverage Shocks: Firm-Level Evidence on Debt Overhang and Investment available in PDF, EPUB and Kindle. The global economy is in the midst of an unprecedented slump caused by the coronavirus pandemic. This systemic risk like no other at a time of record-breaking debt levels, especially among nonfinancial firms across the world, could exacerbate corporate vulnerabilities, deepen macro-financial instability, and cause long-lasting damage to economic potential. Using data on more than 2.8 million nonfinancial firms from 52 countries during the period 1997–2018, we develop a two-pronged approach to investigate the relationship between corporate leverage and fixed investment spending. The empirical analysis, robust to a battery of sensitivity checks, confirm corporate leverage is highly vulnerable to disruptions in profitability and cash flow at the firm level and economic growth at the aggregate level. These findings imply that corporate debt overhang could become a strenuous burden on nonfinancial firms, especially if the COVID-19 pandemic lingers and global downturn becomes protracted.
Corporate Debt Overhang and Investment
Corporate Debt Overhang and Investment - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Corporate Debt Overhang and Investment write by Eduardo Borensztein. This book was released on 2018. Corporate Debt Overhang and Investment available in PDF, EPUB and Kindle. This paper investigates empirically the linkages between corporate debt overhang and investment activity at the firm level for a cross section of large-sized emerging market and developing economies. It analyzes the extent to which investment may be discouraged by high levels of debt that put at risk future profits, as well as firm dimensions that may sharpen the debt-investment link. Using balance sheet data from a broad set of emerging market and developing economy firms, the analysis suggests that corporate debt overhang imposes a sizable effect on investment at the firm level. This linkage is more pronounced for large firms and highly leveraged firms. The analysis also finds evidence of a nonlinear effect, in which debt overhang discourages investment more severely under high levels of indebtedness.
Managing the Sovereign-Bank Nexus
Managing the Sovereign-Bank Nexus - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Managing the Sovereign-Bank Nexus write by Mr.Giovanni Dell'Ariccia. This book was released on 2018-09-07. Managing the Sovereign-Bank Nexus available in PDF, EPUB and Kindle. This paper reviews empirical and theoretical work on the links between banks and their governments (the bank-sovereign nexus). How significant is this nexus? What do we know about it? To what extent is it a source of concern? What is the role of policy intervention? The paper concludes with a review of recent policy proposals.
Debt Overhang, Rollover Risk, and Corporate Investment
Debt Overhang, Rollover Risk, and Corporate Investment - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Debt Overhang, Rollover Risk, and Corporate Investment write by Sebnem Kalemli-Ozcan. This book was released on 2018. Debt Overhang, Rollover Risk, and Corporate Investment available in PDF, EPUB and Kindle. We quantify the role of financial factors that have contributed to sluggish investment in Europe in the aftermath of the 2008-2009 crisis. Using a big data approach, we match the firms to their banks based on banking relationships in 8 European countries over time, obtaining over 2 million observations. We document four stylized facts. First, the decline in investment in the aftermath of the crisis can be linked to higher leverage, increased debt service, and having a relationship with a weak bank-once we condition on aggregate demand shocks. Second, the relation between leverage and investment depends on the maturity structure of debt: firms with a higher share of long-term debt have higher investment rates relative to firms with a lower share of long-term debt since the rollover risk for the former is lower and the latter is higher. Third, the negative effect of leverage is more pronounced when firms are linked to weak banks, i.e., banks with high exposure to sovereign risk. Firms with higher shares of short-term debt decrease investment more relative to firms with lower shares of short-term debt even both set of firms linked to weak banks. This result suggests that loan evergreening by weak banks played a limited role in increasing investment. Fourth, the direct negative effect of weak banks on the average firm's invest- ment disappears once demand shocks are controlled for, although the differential effects with respect to leverage and the maturity of debt remain.
The COVID-19 Impact on Corporate Leverage and Financial Fragility
The COVID-19 Impact on Corporate Leverage and Financial Fragility - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook The COVID-19 Impact on Corporate Leverage and Financial Fragility write by Sharjil M. Haque. This book was released on 2021-11-05. The COVID-19 Impact on Corporate Leverage and Financial Fragility available in PDF, EPUB and Kindle. We study the impact of the COVID-19 recession on capital structure of publicly listed U.S. firms. Our estimates suggest leverage (Net Debt/Asset) decreased by 5.3 percentage points from the pre-shock mean of 19.6 percent, while debt maturity increased moderately. This de-leveraging effect is stronger for firms exposed to significant rollover risk, while firms whose businesses were most vulnerable to social distancing did not reduce leverage. We rationalize our evidence through a structural model of firm value that shows lower expected growth rate and higher volatility of cash flows following COVID-19 reduced optimal levels of corporate leverage. Model-implied optimal leverage indicates firms which did not de-lever became over-leveraged. We find default probability deteriorates most in large, over-leveraged firms and those that were stressed pre-COVID. Additional stress tests predict value of these firms will be less than one standard deviation away from default if cash flows decline by 20 percent.
