Corporate Balance Sheet Restructuring and Investment in the Euro Area

Author/Editor:

Albert Jaeger

Publication Date:

June 1, 2003

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The recent boom-bust cycle in the euro area's equity valuations has left nonfinancial corporations saddled with a legacy of high debt or leverage. Models of corporate investment behavior based on imperfect capital markets predict that highly leveraged balance sheets can act as a brake on investment spending. The paper's empirical analysis suggests that leverage effects on corporate investment can be substantial and persistent, particularly if leverage exceeds threshold values.

Series:

Working Paper No. 03/117

Subject:

English

Publication Date:

June 1, 2003

ISBN/ISSN:

9781451854039/1018-5941

Stock No:

WPIEA1172003

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

24

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