We empirically investigate the impact of government debt on corporate financing decisions in an international setting. We show a negative relation between government debt and corporate leverage using data on 40 countries between 1990–2014. This negative relation is stronger for government debt that is financed domestically, for firms that are larger and more profitable, and in countries with more developed equity markets. To address potential endogeneity concerns, we use an instrumental variable approach based on military spending and a quasi-natural experiment based on the introduction of the Euro currency. Our findings suggest that government debt crowds out corporate debt.
Irem Demirci, Nova School of Business and Economics
Jennifer Huang, Cheung Kong Graduate School of Business, China
Clemens Sialm, Department of Finance, McCombs School of Business, University of Texas at Austin
This content was originally published in Novafrica.org.
The modern economy works in a seamless standardized way. Decision-making by policymakers, managers and investors takes into consideration the assessment of value statements based on financial parameters.
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João Santos, Visiting Professor at Nova SBE, together with Choi, from Seoul University, and Yorulmazer, from Koc University, published their research that considers a macroprodential approach to analyze the optimal lending policy for the central bank.
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Emanuele Rizzo, from the Nova SBE Finance Knowledge Center, was granted the Lamfalussy Research Fellowship from the European Central Bank with a research project aiming to assess the impacts of crowdfunding to small businesses on local credit, labor markets and investments.
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