Corporate debt and investment: A firm-level analysis for stressed euro area countries

The Correlation between Romanian Financing Pattern of Firms and Fixed Capital Formation in the Real Sector

“…Leach et al (2004), patterning on Brander and Lewis (1986), show that although more heavily-indebted firms tend to produce more, considering that production is confined to the extant capacities, the increase in debt beyond a certain threshold may no longer lead to an expansion of production. A similar conclusion is drawn by Gebauer et al (2017) who investigate the link between corporate debt and investment for a group of five peripheral euro area countries in 2005 -2014. The paper looks at a non-linear relationship between corporate debt and investment activity, the authors identifying a threshold beyond which leverage has a negative and significant impact on investment.…”

“…Overly-indebted companies had, on average, a particularly high indebtedness of 558% (debt was more than 5 times higher than own financing sources), compared to the firms in the second groups whose leverage (calculated as a ratio of debt to equity) was below par, at only 42%.Overly-indebted firms were characterised also by a lower degree of financial autonomy in the near run, with circulating assets covering only 85% of short-term debt, compared to the entities with a below-par level of indebtedness, whose current ratio 6 was almost double at 163%. Moreover, return on assets (ROA) 7 in the case of overly-indebted companies was substantially lower than for the firms with a more prudent financial standing (5.1% versus 9.8%).Conversely, greater indebtedness appears to have had a positive effect on the investment rate 8 , posting slightly higher levels for heavilyindebted firms (15.3% versus 13.6% for companies with a below-par leverage). They also displayed a more cyclical economic activity, with an average annual growth rate of gross value added (GVA) at 28.1%, exceeding the economy-wide average of 22.3% and overtaking by far the firms with below-par leverage, which reported a slower pace of increase, on average, at 15.2%.…”

“…Circulating assets/short-term debt7 We did not analyse the return on equity, as this is distorted by the weak capital base of overly-indebted firms 8. Measured as a share of the annual change in fixed assets, including depreciation costs, in firms' total assets.…”

Banking Concentration and Firm Growth: The Role of Size, Location and Financial Crisis

“…Following the definition of firm size groups provided by the European Commission(2003).3 A number of studies examine this specific group of periphery countries since those economies were unstable and vulnerable experiencing significant increases in their budget deficits, government debts and bond yield spreads after the global financial crisis of 2008 (e.g.,Gebauer et al, 2017;Bartlett and Prica, 2016;Codogno and Monti, 2017;Michaelides, 2012;Neck and Blueschke, 2014;Geeroms and Karbownik, 2014). Although Slovenia and Cyprus joined the euro area in 2007 and 2008, respectively, i.e., after the initial years of the examined period, both countries joined the EU in 2004 and were already preparing their membership in the euro area.…”

Does Leverage Influence Firms' Investment Decisions? The Case of BSE 500 Index Companies

“…Contradictory research findings indicate positive as well as negative association between the two variables in different countries as the association depends upon firm characteristics and macroeconomic environment (Gebauer et al, 2018).The negative influence between these two variables is more prominent in non-core sector than core sector (Ahn et al, 2006).Leverage plays a disciplining role for low growth opportunity Canadian firms and has a statistically negative influence on their investment (Aivazian et al, 2005). Another study on Chinese firms found similar results in case of government owned firms.…”