Description

The recent boom-bust cycle in the euro area's equity valuations has left nonfinancial corporations saddled with a legacy of high debt or leverage. Models of corporate investment behavior based on imperfect capital markets predict that highly leveraged balance sheets can act as a brake on investment spending. The paper's empirical analysis suggests that leverage effects on corporate investment can be substantial and persistent, particularly if leverage exceeds threshold values.

Taxonomy

Business cycles , Economic cooperation , Economic development , Euro area , Investment , Monetary unions

More publications in this series: Working Papers

More publications by: Albert Jaeger