Macro-Financial Implications of Corporate (De)Leveraging in the Euro Area Periphery

June 26, 2013

Preview Citation

Format: Chicago

Manuela Goretti, and Marcos R Souto. Macro-Financial Implications of Corporate (De)Leveraging in the Euro Area Periphery, (USA: International Monetary Fund, 2013) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

High corporate indebtedness can pose an important threat to the adjustment processes in some of the Euro area periphery countries, through its drag on investment as well as the possible migration of private sector losses to the sovereign balance sheet. This paper examines the macroeconomic implications of corporate debt overhang in recent years, confirming empirical evidence in the literature on the relationship between a firm’s balance sheet position and its investment choices, especially beyond certain threshold levels. Building on an event study of past crisis experiences with corporate deleveraging, it also discusses the expected macro-financial impact of the ongoing deleveraging processes in these countries, presenting available policy options to facilitate an orderly balance-sheet adjustment and support a return to productivity and growth.

Subject: Asset and liability management, Debt burden, Debt restructuring, External debt, Financial crises, Financial statements, Public debt, Public financial management (PFM)

Keywords: Balance sheet indicator, Capital structure, Corporate Investment, Crisis, Debt burden, Debt overhang, Debt restructuring, Deleveraging, East Asia, Euro Area, Europe, Financial statements, Firm, Firms' ability, Funding option, Global, Investment decision, Investment-to-capital ratio, Net, WP

Publication Details

Pages:

24
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/154
Stock No:

WPIEA2013154
ISBN:

9781475577563
ISSN:

1018-5941

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