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Excess Leverage and Productivity Growth in Emerging Economies: Is There A Threshold Effect?

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Author Info

  • Coricelli, Fabrizio

    ()
    (Paris School of Economics)

  • Driffield, Nigel

    ()
    (Aston University)

  • Pal, Sarmistha

    ()
    (University of Surrey)

  • Roland, Isabelle

    ()
    (London School of Economics)

Abstract

The paper examines the relationship between leverage and growth in a group of emerging central and eastern European countries, who are at different levels of financial market development. We hypothesize a non-linear relationship in that moderate leverage could boost growth while very high leverage could lower it by increasing the likelihood of financial distress and bankruptcy. Estimates of a Threshold model confirm the non-linear relationship in our sample, after controlling for various firm, industry and financial market characteristics. We also endogenously determine a threshold level of leverage beyond which further increases in leverage could lower TFP growth.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4834.

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Length: 47 pages
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:iza:izadps:dp4834

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Related research

Keywords: bank efficiency; market capitalization; TFP growth; Threshold model; non-linear relationship; excess leverage; transition experience;

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References

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Citations

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Cited by:
  1. Antoine Godin & Stephen Kinsella, 2012. "Leverage, liquidity and crisis: A simulation study," ASSRU Discussion Papers, ASSRU - Algorithmic Social Science Research Unit 1205, ASSRU - Algorithmic Social Science Research Unit.
  2. Maria Gonzalez, 2012. "Nonfinancial Firms in Latin America," IMF Working Papers 12/279, International Monetary Fund.
  3. Kalemli-Ozcan, Sebnem & Sorensen, Bent & Yesiltas, Sevcan, 2012. "Leverage across firms, banks, and countries," Journal of International Economics, Elsevier, Elsevier, vol. 88(2), pages 284-298.
  4. Brown, Martin & Lane, Philip R., 2011. "Debt overhang in emerging Europe ?," Policy Research Working Paper Series 5784, The World Bank.
  5. Manuela Goretti & Marcos Souto, 2013. "Macro-Financial Implications of Corporate (De)Leveraging in the Euro Area Periphery," IMF Working Papers 13/154, International Monetary Fund.
  6. Leandro Medina, 2012. "Spring Forward or Fall Back? The Post-Crisis Recovery of Firms," IMF Working Papers 12/292, International Monetary Fund.

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