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

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  • Coricelli, Fabrizio
  • Driffield, Nigel
  • Pal, Sarmistha
  • Roland, Isabelle

Abstract

This paper studies the relationship between leverage and growth, focusing on a large sample of firms in emerging economies of central and eastern Europe (CEE). Contrary to the general wisdom, we find that deviation from optimal leverage, especially excess leverage, is common among firms in many CEE countries. Using firm-level panel data, the paper provides support to the hypothesis that leverage positively affects productivity growth but only below an endogenously determined threshold level.

Suggested Citation

  • Coricelli, Fabrizio & Driffield, Nigel & Pal, Sarmistha & Roland, Isabelle, 2009. "Excess Leverage and Productivity Growth in Emerging Economies: Is There A Threshold Effect?," CEPR Discussion Papers 7617, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:7617
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    Citations

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    Cited by:

    1. Leandro Medina, 2012. "Spring Forward or Fall Back? The Post-Crisis Recovery of Firms," IMF Working Papers 12/292, International Monetary Fund.
    2. Manuela Goretti & Marcos R Souto, 2013. "Macro-Financial Implications of Corporate (De)Leveraging in the Euro Area Periphery," IMF Working Papers 13/154, International Monetary Fund.
    3. International Monetary Fund, 2016. "Ireland; Selected Issues," IMF Staff Country Reports 16/257, International Monetary Fund.
    4. Antoine Godin & Stephen Kinsella, 2012. "Leverage, liquidity and crisis: A simulation study," ASSRU Discussion Papers 1205, ASSRU - Algorithmic Social Science Research Unit.
    5. Maria Gonzalez, 2012. "Nonfinancial Firms in Latin America; A Source of Vulnerability?," IMF Working Papers 12/279, International Monetary Fund.
    6. Kalemli-Ozcan, Sebnem & Sorensen, Bent & Yesiltas, Sevcan, 2012. "Leverage across firms, banks, and countries," Journal of International Economics, Elsevier, vol. 88(2), pages 284-298.
    7. Brown, Martin & Lane, Philip R., 2011. "Debt overhang in emerging Europe ?," Policy Research Working Paper Series 5784, The World Bank.
    8. Lawless, Martina & O’Connell, Brian & O’Toole, Conor, 2015. "SME recovery following a financial crisis: Does debt overhang matter?," Journal of Financial Stability, Elsevier, vol. 19(C), pages 45-59.

    More about this item

    Keywords

    Excess Leverage; TFP growth; Threshold model;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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