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Corporate Leverage and Investment in Portugal


  • Ana Martins

    () (GEE - Gabinete de Estratégia e Estudos do Ministério da Economia)

  • José Henrique Gonçalves

    () (GEE - Gabinete de Estratégia e Estudos do Ministério da Economia)

  • João Mário Ferreira Duque



This analysis aims at assessing the decrease of investment induced by an increase in debt of an excessively indebted corporate sector in Portugal, testing empirically the relationship between corporate indebtedness and investment. The results show evidence of a negative relationship between firms’ investment-to-capital ratio and their indebtedness over the period 2010-15. This type of relation between these variables suggests the need for companies to deleverage. Results also point to asymmetric effects beyond a certain threshold level of indebtedness, namely a debt-to-asset ratio of 45.6%, because greater access to debt can help increase investment levels, but excess leverage can reverse these benefits by raising corporate vulnerabilities. Relationship between debt and investment was also tested along firm sector to deepen the role of firm sector heterogeneity and a negative relationship was also found in the three major sectors (Wholesale and retail, Manufacturing and Construction).

Suggested Citation

  • Ana Martins & José Henrique Gonçalves & João Mário Ferreira Duque, 2018. "Corporate Leverage and Investment in Portugal," GEE Papers 0100, Gabinete de Estratégia e Estudos, Ministério da Economia, revised Mar 2018.
  • Handle: RePEc:mde:wpaper:0100

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    More about this item


    Corporate debt; leverage; investment; threshold;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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