We quantify the role of financial leverage behind the sluggish post-crisis investment performance of European firms. We use a cross-country firm-bank matched database to identify separate roles for firm leverage, bank balance sheet weaknesses arising from sovereign risk, and aggregate demand conditions. We find that firms entering the crisis with higher debt levels reduce their investment more after the crisis.
Corporate Debt Overhang, Rollover Risk, and Investment in EuropeSebnem Kalemli-Ozcan, Luc Laeven, David Moreno ,
Journal of European Economic Association