Corporate Debt Overhang and Investment : Firm-Level Evidence
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 b...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2018
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/481931534337937622/Corporate-debt-overhang-and-investment-firm-level-evidence http://hdl.handle.net/10986/30243 |
| Summary: | 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. |
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