Corporate debt and investment: a firm level analysis for stressed euro area countries
This paper investigates the link between corporate debt and investment for a group of five peripheral euro area countries. Using ？rm-level data from 2005-2014, we postulate a non-linear corporate leverage-investment relationship and derive thresholds beyond which leverage has a negative and signi？cant impact on investment. The investment sensitivity of debt increased after 2008 when ？nancial distress intensi？ed and ？rms had a lower capacity to ？nance investment from internal sources of funds. Our results also suggest that even moderate levels of debt can exert a negative influence on investment for smaller ？rms or when pro？tability is low.