Debt overhang, global growth opportunities, and investment

Insolvency and debt overhang following the COVID-19 outbreak: Assessment of risks and policy responses

“…Consistent with previous studies (e.g. Kalemli-Ozcan et al, 2019;Barbiero et al, 2020), the results from the panel model confirms the existence of a negative and statistically significant relationship between financial leverage and investment. Interpreting results causally, the magnitude of the effect is not negligible.…”

“…• The negative effect of debt overhang on investment. Higher levels of corporate debt require businesses to reduce investment in the aftermath of economic crises (Kalemli-Ozcan et al, 2019;Barbiero et al, 2020). This can slow down the speed of the recovery.…”

“…The model is closely related to the approaches adopted by Kalemli-Ozcan et al ( 2019) and Barbiero et al (2020). It is estimated by OLS, clustering standard errors at the firm level (e.g.…”

Corporate debt booms, financial constraints and the investment nexus

“…Second, I use data since the mid-80s that span several episodes of firm-specific debt buildups. This allows me to overcome the challenge of extrapolating findings from a particular episode, such as the GFC , Giroud and Mueller 2017, Barbiero et al 2020. For instance, the association between corporate debt and investment during the GFC may be plagued by important confounding effects, such as low bank capital and household deleveraging effects.…”

“…Their results are consistent with the view that debt has a disciplinary role in investment decisions (Grossman and Hart 1982). Focusing on the 2007-09 Great Financial Crisis (GFC), research has also found that firms with higher pre-crisis debt experienced weaker investment in the aftermath of the GFC , Giroud and Mueller 2017, Barbiero et al 2020.…”