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.
A study that aims to foster a culture that respects different perspectives, accounted by a barrier for better investment decisions.
Learn more
More than half of the world’s total GDP is dependent on Nature. There is an intrinsic and commonly recognizable value to the natural world, that is reflected, economically, in the concept of ecosystem services. So, how do these services work?
Learn more
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.
Learn more
