![Page 1: Manuela Goretti and Marcos Souto IMF WP/13/154ec.europa.eu/economy_finance/events/2015/20151202... · High corporate indebtedness implications Drag on companies profitability, investment](https://reader033.vdocument.in/reader033/viewer/2022051808/600964be8a59256a5e37e0da/html5/thumbnails/1.jpg)
Manuela Goretti and Marcos Souto
IMF WP/13/154
Copyright rests with the author. All rights reserved
![Page 2: Manuela Goretti and Marcos Souto IMF WP/13/154ec.europa.eu/economy_finance/events/2015/20151202... · High corporate indebtedness implications Drag on companies profitability, investment](https://reader033.vdocument.in/reader033/viewer/2022051808/600964be8a59256a5e37e0da/html5/thumbnails/2.jpg)
Outline High corporate indebtedness implications
Summary of main results summary
What led to indebtedness?
Empirical methodology, data and results
Corporate (de)leveraging
Policy implication and concluding remarks
Goretti and Souto (2013) 2
![Page 3: Manuela Goretti and Marcos Souto IMF WP/13/154ec.europa.eu/economy_finance/events/2015/20151202... · High corporate indebtedness implications Drag on companies profitability, investment](https://reader033.vdocument.in/reader033/viewer/2022051808/600964be8a59256a5e37e0da/html5/thumbnails/3.jpg)
High corporate indebtedness implications
Drag on companies profitability, investment and Growth (Fazzari et al. (1988), Bernanke et al. (1999), Vermeulen (2000), Farinha (1995) and Barbosa et al. (2007))
Increased credit risk -> NPL↑ -> potential fiscal implications and on-> sovereign credit risk ↑.
Goretti and Souto (2013) 3
![Page 4: Manuela Goretti and Marcos Souto IMF WP/13/154ec.europa.eu/economy_finance/events/2015/20151202... · High corporate indebtedness implications Drag on companies profitability, investment](https://reader033.vdocument.in/reader033/viewer/2022051808/600964be8a59256a5e37e0da/html5/thumbnails/4.jpg)
Summary of main results We find a negative relationship between corporate
investment and indebtedness.
Significant asymmetric effect beyond certain threshold levels of indebtedness.
Goretti and Souto (2013) 4
![Page 5: Manuela Goretti and Marcos Souto IMF WP/13/154ec.europa.eu/economy_finance/events/2015/20151202... · High corporate indebtedness implications Drag on companies profitability, investment](https://reader033.vdocument.in/reader033/viewer/2022051808/600964be8a59256a5e37e0da/html5/thumbnails/5.jpg)
What led to indebtedness?
Goretti and Souto (2013) 5
![Page 6: Manuela Goretti and Marcos Souto IMF WP/13/154ec.europa.eu/economy_finance/events/2015/20151202... · High corporate indebtedness implications Drag on companies profitability, investment](https://reader033.vdocument.in/reader033/viewer/2022051808/600964be8a59256a5e37e0da/html5/thumbnails/6.jpg)
Hypothesis 1: Investment affected by indebtedness? Vermeulen (2000) – Panel Approach:
Ikit: investment-to-capital ratio of firm i at time t
D: debt-to-equity or interest coverage ratio (ICR)
SK: lagged sales-to-capital ratio SK to control for standard sales-accelerator effects
Δ sensitivity of the investment rate to indebtedness
BACH, 21 sectors, Austria, Belgium, France, Germany, Italy, Netherlands, Portugal and Spain
Goretti and Souto (2013) 6
![Page 7: Manuela Goretti and Marcos Souto IMF WP/13/154ec.europa.eu/economy_finance/events/2015/20151202... · High corporate indebtedness implications Drag on companies profitability, investment](https://reader033.vdocument.in/reader033/viewer/2022051808/600964be8a59256a5e37e0da/html5/thumbnails/7.jpg)
Hypothesis 2: threshold effect?
Literature: Jaeger (2003), IMF (2004), Coricelli et al. (2010) and Cecchetti et al. (2010).
We estimate:
Threshold: debt-to-equity above 25th percentile of the representative Euro area firms in the sample.
Goretti and Souto (2013) 7
![Page 8: Manuela Goretti and Marcos Souto IMF WP/13/154ec.europa.eu/economy_finance/events/2015/20151202... · High corporate indebtedness implications Drag on companies profitability, investment](https://reader033.vdocument.in/reader033/viewer/2022051808/600964be8a59256a5e37e0da/html5/thumbnails/8.jpg)
Goretti and Souto (2013) 8
![Page 9: Manuela Goretti and Marcos Souto IMF WP/13/154ec.europa.eu/economy_finance/events/2015/20151202... · High corporate indebtedness implications Drag on companies profitability, investment](https://reader033.vdocument.in/reader033/viewer/2022051808/600964be8a59256a5e37e0da/html5/thumbnails/9.jpg)
Results
Goretti and Souto (2013) 9
![Page 10: Manuela Goretti and Marcos Souto IMF WP/13/154ec.europa.eu/economy_finance/events/2015/20151202... · High corporate indebtedness implications Drag on companies profitability, investment](https://reader033.vdocument.in/reader033/viewer/2022051808/600964be8a59256a5e37e0da/html5/thumbnails/10.jpg)
Corporate (de)leveraging EA periphery versus past crises
Goretti and Souto (2013) 10
![Page 11: Manuela Goretti and Marcos Souto IMF WP/13/154ec.europa.eu/economy_finance/events/2015/20151202... · High corporate indebtedness implications Drag on companies profitability, investment](https://reader033.vdocument.in/reader033/viewer/2022051808/600964be8a59256a5e37e0da/html5/thumbnails/11.jpg)
Past crises, NPLs and fiscal costs
Goretti and Souto (2013) 11
![Page 12: Manuela Goretti and Marcos Souto IMF WP/13/154ec.europa.eu/economy_finance/events/2015/20151202... · High corporate indebtedness implications Drag on companies profitability, investment](https://reader033.vdocument.in/reader033/viewer/2022051808/600964be8a59256a5e37e0da/html5/thumbnails/12.jpg)
Increased sovereign indebtedness
Goretti and Souto (2013) 12
![Page 13: Manuela Goretti and Marcos Souto IMF WP/13/154ec.europa.eu/economy_finance/events/2015/20151202... · High corporate indebtedness implications Drag on companies profitability, investment](https://reader033.vdocument.in/reader033/viewer/2022051808/600964be8a59256a5e37e0da/html5/thumbnails/13.jpg)
Policy implications and concluding remarks Corporate debt restructuring
Finding alternative funding
Banks properly recognize expected losses and provision accordingly
Promoting transparency and information sharing
Targeted fiscal incentives
Goretti and Souto (2013) 13
![Page 14: Manuela Goretti and Marcos Souto IMF WP/13/154ec.europa.eu/economy_finance/events/2015/20151202... · High corporate indebtedness implications Drag on companies profitability, investment](https://reader033.vdocument.in/reader033/viewer/2022051808/600964be8a59256a5e37e0da/html5/thumbnails/14.jpg)
![Page 15: Manuela Goretti and Marcos Souto IMF WP/13/154ec.europa.eu/economy_finance/events/2015/20151202... · High corporate indebtedness implications Drag on companies profitability, investment](https://reader033.vdocument.in/reader033/viewer/2022051808/600964be8a59256a5e37e0da/html5/thumbnails/15.jpg)
Goretti and Souto (2013) 15
![Page 16: Manuela Goretti and Marcos Souto IMF WP/13/154ec.europa.eu/economy_finance/events/2015/20151202... · High corporate indebtedness implications Drag on companies profitability, investment](https://reader033.vdocument.in/reader033/viewer/2022051808/600964be8a59256a5e37e0da/html5/thumbnails/16.jpg)
Goretti and Souto (2013) 16
![Page 17: Manuela Goretti and Marcos Souto IMF WP/13/154ec.europa.eu/economy_finance/events/2015/20151202... · High corporate indebtedness implications Drag on companies profitability, investment](https://reader033.vdocument.in/reader033/viewer/2022051808/600964be8a59256a5e37e0da/html5/thumbnails/17.jpg)
Goretti and Souto (2013) 17
![Page 18: Manuela Goretti and Marcos Souto IMF WP/13/154ec.europa.eu/economy_finance/events/2015/20151202... · High corporate indebtedness implications Drag on companies profitability, investment](https://reader033.vdocument.in/reader033/viewer/2022051808/600964be8a59256a5e37e0da/html5/thumbnails/18.jpg)
Goretti and Souto (2013) 18
![Page 19: Manuela Goretti and Marcos Souto IMF WP/13/154ec.europa.eu/economy_finance/events/2015/20151202... · High corporate indebtedness implications Drag on companies profitability, investment](https://reader033.vdocument.in/reader033/viewer/2022051808/600964be8a59256a5e37e0da/html5/thumbnails/19.jpg)
Goretti and Souto (2013) 19
![Page 20: Manuela Goretti and Marcos Souto IMF WP/13/154ec.europa.eu/economy_finance/events/2015/20151202... · High corporate indebtedness implications Drag on companies profitability, investment](https://reader033.vdocument.in/reader033/viewer/2022051808/600964be8a59256a5e37e0da/html5/thumbnails/20.jpg)
Goretti and Souto (2013) 20