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When does leverage hurt productivity growth? A firm-level analysis
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Coricelli, Fabrizio, Driffield, Nigel L., Pal, Sarmistha and Roland, Isabelle (2012) When does leverage hurt productivity growth? A firm-level analysis. Journal of International Money and Finance, Volume 31 (Number 6). pp. 1674-1694. doi:10.1016/j.jimonfin.2012.03.006 ISSN 02615606.
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Official URL: http://dx.doi.org/10.1016/j.jimonfin.2012.03.006
Abstract
In the wake of the global financial crisis, several macroeconomic contributions have highlighted the risks of excessive credit expansion. In particular, too much finance can have a negative impact on growth. We examine the microeconomic foundations of this argument, positing a non-monotonic relationship between leverage and firm-level productivity growth in the spirit of the trade-off theory of capital structure. A threshold regression model estimated on a sample of Central and Eastern European countries confirms that TFP growth increases with leverage until the latter reaches a critical threshold beyond which leverage lowers TFP growth. This estimate can provide guidance to firms and policy makers on identifying “excessive” leverage. We find similar non-monotonic relationships between leverage and proxies for firm value. Our results are a first step in bridging the gap between the literature on optimal capital structure and the wider macro literature on the finance-growth nexus.
Item Type: | Journal Article | ||||||
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Divisions: | Faculty of Social Sciences > Warwick Business School > Strategy & International Business Faculty of Social Sciences > Warwick Business School |
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Journal or Publication Title: | Journal of International Money and Finance | ||||||
Publisher: | Elsevier BV | ||||||
ISSN: | 02615606 | ||||||
Official Date: | October 2012 | ||||||
Dates: |
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Volume: | Volume 31 | ||||||
Number: | Number 6 | ||||||
Page Range: | pp. 1674-1694 | ||||||
DOI: | 10.1016/j.jimonfin.2012.03.006 | ||||||
Status: | Peer Reviewed | ||||||
Publication Status: | Published | ||||||
Access rights to Published version: | Restricted or Subscription Access |
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