Macro-Financial Implications of Corporate (De)Leveraging in the Euro Area Periphery

Abstract

High corporate indebtedness can pose an important threat to the adjustment processes in some of the Euro area periphery countries, through its drag on investment as well as the possible migration of private sector losses to the sovereign balance sheet. This paper examines the macroeconomic implications of corporate debt overhang in recent years, confirming empirical evidence in the literature on the relationship between a firm's balance sheet position and its investment choices, especially beyond certain threshold levels. Building on an event study of past crisis experiences with corporate deleveraging, it also discusses the expected macro-financial impact of the ongoing deleveraging processes in these countries, presenting available policy options to facilitate an orderly balance-sheet adjustment and support a return to productivity and growth.

Yields on Sovereign Debt, Fragmentation and Monetary Policy Transmission in the Euro Area: A GVAR Approach

“…This is in line with Goretti and Souto (2013), who provide evidence of this by showing that corporate lending was more affected by sovereign yields and unemployment than by developments in the Euribor.…”

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

“…Our paper adds to the empirical literature on non-linear effects of corporate debt on investment (see, e.g., Jäger, 2003;Goretti and Souto, 2013). Leverage thresholds in these studies are typically determined in an exogenous and ad-hoc manner, instead of being derived from statistical inference.…”

“…In addition, we follow Bick (2010) and Kremer et al (2013) in including a regime-specific intercept term (δ 1 ). 9 We assume the errors ε it to be independent and identically distributed 10 and lag all right-hand-side variables by one 8 See Kalemli-Özcan et al (2015a), Goretti andSouto (2013), or Coricelli et al (2012) for a discussion of firm-level control variables usually used in investment and productivity regression models.…”

Nonperforming loans in the euro area: Are core–periphery banking markets fragmented?

“…2 The differentiation of core-periphery countries (apart from our identification assumption based on the size of the NPL ratio) is also based on the studies of Goretti and Souto (2013); Al-Eyd and Berkmen (2013); Angelopoulou, Balfoussia, and Gibson (2014); and Bijsterbosch and Falagiarda (2015). 2 The differentiation of core-periphery countries (apart from our identification assumption based on the size of the NPL ratio) is also based on the studies of Goretti and Souto (2013); Al-Eyd and Berkmen (2013); Angelopoulou, Balfoussia, and Gibson (2014); and Bijsterbosch and Falagiarda (2015).…”

“…ENDNOTES 1 Cyprus, Estonia, Latvia, Malta, and Slovenia are not included in our sample because bank-specific data were not fully available for these countries. 2 The differentiation of core-periphery countries (apart from our identification assumption based on the size of the NPL ratio) is also based on the studies of Goretti and Souto (2013); Al-Eyd and Berkmen (2013); Angelopoulou, Balfoussia, and Gibson (2014); and Bijsterbosch and Falagiarda (2015).…”