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

45 Pages Posted: 19 Feb 2019

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

Luc Laeven

European Central Bank (ECB); Centre for Economic Policy Research (CEPR)

David Moreno

Central Bank of Chile

Multiple version iconThere are 3 versions of this paper

Date Written: February 15, 2019

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: Firm Investment, Debt Maturity, Rollover Risk, Bank-Sovereign Nexus

JEL Classification: E22, E32, E44, F34, F36, G32

Suggested Citation

Kalemli-Ozcan, Sebnem and Laeven, Luc A. and Moreno, David, Debt Overhang, Rollover Risk, and Corporate Investment: Evidence from the European Crisis (February 15, 2019). ECB Working Paper No. 2241 (2019); ISBN 978-92-899-3503-6 , Available at SSRN: https://ssrn.com/abstract=3336457

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

Luc A. Laeven

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

David Moreno

Central Bank of Chile ( email )

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Santiago
Chile

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