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Is debt overhang causing firms to underinvest?

Author

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  • Filippo Occhino

Abstract

Many economists have suggested that the weakness of corporate balance sheets is constraining business spending and investment, and that this in turn is impeding growth and the recovery. High levels of debt can depress spending and investment through several channels. This Commentary explains one of them?debt overhang can cause firms to underinvest?and points to ways in which this effect might be inhibiting the recovery.

Suggested Citation

  • Filippo Occhino, 2010. "Is debt overhang causing firms to underinvest?," Economic Commentary, Federal Reserve Bank of Cleveland, issue Jul.
    • Handle: RePEc:fip:fedcec:y:2010:i:jul20:n:2010-7
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    File URL: https://www.clevelandfed.org/publications/economic-commentary/2010/ec-201007-is-debt-overhang-causing-firms-to-underinvest
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    Citations

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    Cited by:

    1. Georgios Magkonis & Anastasia Theofilakou, 2019. "Transmission of sectoral debt shocks in OECD countries: Evidence from the income channel," Working Papers in Economics & Finance 2019-02, University of Portsmouth, Portsmouth Business School, Economics and Finance Subject Group.
    2. Willem Vanlaer & Mattia Picarelli & Wim Marneffe, 2021. "Debt and Private Investment: Does the EU Suffer from a Debt Overhang?," Open Economies Review, Springer, vol. 32(4), pages 789-820, September.
    3. Satyajit Chatterjee, 2013. "Debt overhang: why recovery from a financial crisis can be slow," Business Review, Federal Reserve Bank of Philadelphia, issue Q2, pages 1-9.
    4. Chen, Fang & Huang, Jing-Zhi & Sun, Zhenzhen & Yu, Tong, 2020. "Why do firms issue guaranteed bonds?," Journal of Banking & Finance, Elsevier, vol. 119(C).
    5. Ms. Yan Liu & Mr. Christoph B. Rosenberg, 2013. "Dealing with Private Debt Distress in the Wake of the European Financial Crisis A Review of the Economics and Legal Toolbox," IMF Working Papers 2013/044, International Monetary Fund.
    6. Blickle, Kristian & Santos, João A.C., 2024. "The costs of corporate debt overhang," Journal of Financial Intermediation, Elsevier, vol. 60(C).
    7. George M. von Furstenberg, 2011. "Concocting Marketable Cocos," Working Papers 222011, Hong Kong Institute for Monetary Research.
    8. Romanos Priftis & Anastasia Theofilakou, 2021. "Growth effects of corporate balance sheet adjustments in the EU," Empirical Economics, Springer, vol. 60(2), pages 773-801, February.

    More about this item

    Keywords

    Corporations - Finance; Debt;

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