Corporate Balance Sheet Restructuring and Investment in the Euro Area

Corporate Balance Sheet Restructuring and Investment in the Euro Area

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The recent boom-bust cycle in the euro area''s equity valuations has left nonfinancial corporations saddled with a legacy of high debt or leverage. Models of corporate investment behavior based on imperfect capital markets predict that highly leveraged balance sheets can act as a brake on investment spending. The paper''s empirical analysis suggests that leverage effects on corporate investment can be substantial and persistent, particularly if leverage exceeds threshold values.In a bare-bones model of corporate investment, capital markets are perfect and changes in a firma#39;s desired capital stock reflect only changes in expected profitability or changes in the user cost of capitala€”the firma#39;s financial structure plays noanbsp;...


Title:Corporate Balance Sheet Restructuring and Investment in the Euro Area
Author: Mr. Albert Jaeger
Publisher:International Monetary Fund - 2003-06-01
ISBN-13:

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