Working Paper: CEPR ID: DP12784
Authors: Francesca Barbiero; Alexander Popov; Marcin Wolski
Abstract: Using a pan-European dataset of 8.5 million rms, we find that firms with high debt overhang invest relatively more than otherwise similar firms if they are operating in sectors facing good global growth opportunities. This effect is robust to controlling for firm fi xed effects and for country-sector-time fixed effects. At the same time, the positive impact of a marginal increase in debt on investment efficiency disappears if fi rm debt is excessive, if it is dominated by short maturities, and during systemic banking crises. Our results are consistent with theories highlighting the disciplining role of debt over equity.
Keywords: Investment; Misallocation; Debt Overhang; Banking Crises
JEL Codes: E22; E44; G21; H63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| high debt overhang (H63) | invest more (G31) |
| good global growth opportunities (F01) | invest more (G31) |
| excessive debt (H63) | lower investment efficiency (G31) |
| debt dominated by short maturities (F34) | lower investment efficiency (G31) |
| systemic banking crises (F65) | lower investment efficiency (G31) |
| high debt levels during financial crises (F65) | invest less (G31) |
| lower growth opportunities (O49) | lower investment efficiency (G31) |
| debt (H63) | investment efficiency (G14) |