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Long-run trends in corporate investment and leverage in the UK: a decomposition

Author

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  • Aitor Irastorza-Fadrique
  • Lars Nesheim
  • Peter Levell

Abstract

Since the 2008 Global Financial Crisis, the UK has experienced persistently weak productivity and corporate investment alongside a sustained decline in corporate leverage. We use a large annual panel of UK firms drawn from the FAME database to document and decompose these long-run trends over 2006–2023. Our productivity results confirm earlier evidence of weak growth and widening differences between leading firms and the rest, while extending the firm-level analysis through 2023 and to finance and insurance. Across productivity, investment, and leverage, we distinguish common time effects affecting incumbent firms from compositional effects associated with firm entry and exit. Productivity weakness after 2016 is primarily observed within incumbent firms. The investment slowdown is likewise concentrated after 2016 and driven mainly by declining investment intensity within firms. For leverage, compositional changes account for an important part of the decline around the Global Financial Crisis, whereas subsequent deleveraging occurs primarily within incumbent firms.

Suggested Citation

  • Aitor Irastorza-Fadrique & Lars Nesheim & Peter Levell, 2026. "Long-run trends in corporate investment and leverage in the UK: a decomposition," CeMMAP working papers 15/26, Institute for Fiscal Studies.
    • Handle: RePEc:azt:cemmap:15/26
    DOI: 10.47004/wp.cem.2026.1526
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