Working Paper: CEPR ID: DP7617
Authors: Fabrizio Coricelli; Nigel Driffield; Sarmistha Pal; Isabelle Roland
Abstract: This paper studies the relationship between leverage and growth, focusing on a large sample of firms in emerging economies of central and eastern Europe (CEE). Contrary to the general wisdom, we find that deviation from optimal leverage, especially excess leverage, is common among firms in many CEE countries. Using firm-level panel data, the paper provides support to the hypothesis that leverage positively affects productivity growth but only below an endogenously determined threshold level.
Keywords: excess leverage; TFP growth; threshold model
JEL Codes: G32; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| leverage (G24) | TFP growth (O49) |
| moderate levels of leverage (G32) | TFP growth (O49) |
| excessive leverage (G32) | TFP growth (O49) |
| leverage (up to 40%) (G32) | TFP growth (O49) |
| leverage (beyond 40%) (G32) | TFP growth (O49) |