Corporate Balance Sheet Restructuring and Investment in the Euro Area

June 1, 2003

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.

Subject: Business enterprises, Corporate finance, Corporate investment, Economic sectors, Financial institutions, Financial statements, National accounts, Public financial management (PFM), Stocks

Keywords: balance sheet restructuring, business cycle, Business enterprises, Corporate finance, Corporate investment, Corporate investment and financing, cost of capital, debt-equity mix, equity, equity investment, equity valuation, financial asset, Financial statements, financing, forecasting, Global, investment, investment boom, investment opportunity, investment-capital ratio, Stocks, WP

Pages:
24
Volume:
2003
DOI:
https://doi.org/10.5089/9781451854039.001
Issue:
117
Series:
Working Paper No. 2003/117
Stock No:
WPIEA1172003
ISBN:
9781451854039
ISSN:
1018-5941

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