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Zombies at large? Corporate debt overhang and the macroeconomy

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  • Schularick, Moritz
  • Jordà , Ã’scar
  • Kornejew, Martin
  • Taylor, Alan M.

Abstract

With business leverage at record levels, the effects of corporate debt overhang on growth and investment have become a prominent concern. In this paper, we study the effects of corporate debt overhang based on long-run cross-country data covering the near universe of modern business cycles. We show that business credit booms typically do not leave a lasting imprint on the macroeconomy. Quantile local projections indicate that business credit booms do not affect the economy’s tail risks either. Yet in line with theory, we find that the economic costs of corporate debt booms rise when inefficient debt restructuring and liquidation impede the resolution of corporate financial distress and make it more likely that corporate zombies creep along.

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  • Schularick, Moritz & Jordà , Ã’scar & Kornejew, Martin & Taylor, Alan M., 2020. "Zombies at large? Corporate debt overhang and the macroeconomy," CEPR Discussion Papers 15518, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:15518
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    More about this item

    Keywords

    Corporate debt; Business cycles; Local projections;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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