The Euro and Corporate Financing before the Crisis
45 Pages Posted: 10 Nov 2015 Last revised: 6 May 2016
Date Written: July 10, 2014
Private sector borrowing has been identified as a major factor behind the euro crisis. We study the contribution of non-financial public corporations to this finding. Using data from eleven euro countries and a control group of five other European countries over 1991-2006, we show that firms from euro countries with previously weak currencies considerably increased their debt financing after the introduction of the euro. Results are stronger during the latter half of our sample period, for large firms and for firms dependent on external financing. These results support the hypothesis that the supply of capital increased in the euro area before the crisis.
Keywords: euro, external financing, debt financing, leverage, supply of capital, financial dependence, financial fragility
JEL Classification: F33, F36, G32
Suggested Citation: Suggested Citation