Debt Overhang, Rollover Risk, and Corporate Investment: Evidence from the European Crisis

44 Pages Posted: 26 Nov 2018 Last revised: 24 Mar 2020

See all articles by Sebnem Kalemli-Ozcan

Sebnem Kalemli-Ozcan

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER); Koc University, Graduate School of Business

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Date Written: March 2020

Abstract

We quantify the role of financial factors behind the sluggish post-crisis performance of European firms. We use a firm-bank-sovereign matched database to identify separate roles for firm and bank balance sheet weaknesses arising from changes in sovereign risk and aggregate demand conditions. We find that firms with higher debt levels and a higher share of short-term debt reduce their investment more after the crisis. This negative effect is stronger for firms linked to weak banks with exposures to sovereign risk, signifying increased rollover risk. These financial channels explain about 60% of the decline in aggregate corporate investment.

Keywords: Bank-Sovereign Nexus, debt maturity, Firm Investment, Rollover Risk

JEL Classification: E0, F0

Suggested Citation

Kalemli-Ozcan, Sebnem, Debt Overhang, Rollover Risk, and Corporate Investment: Evidence from the European Crisis (March 2020). CEPR Discussion Paper No. DP13336, Available at SSRN: https://ssrn.com/abstract=3290528

Sebnem Kalemli-Ozcan (Contact Author)

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Koc University, Graduate School of Business ( email )

Rumelifeneri Yolu
34450 Sar?yer
Istanbul, 34450
Turkey

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