Research Insights: How Does Debt Affect Corporate Investment in Periods of High Uncertainty?
Peer Reviewed
Date issued
May 2023
Subject
Investment;
Small Business;
Coronavirus;
Rating;
Pandemic;
Economic Recession;
Credit Policy;
Financial Crisis;
Global Financial Crisis;
Bank Loan;
Investment Increase;
Corporate Debt;
Debt Management;
Investment Project
JEL code
E44 - Financial Markets and the Macroeconomy;
E61 - Policy Objectives • Policy Designs and Consistency • Policy Coordination;
E62 - Fiscal Policy;
F34 - International Lending and Debt Problems;
H87 - International Fiscal Issues • International Public Goods
Category
Catalogs and Brochures
Investment rates are substantially reduced for firms with higher leverage and higher risk of default. For firms with low risk, higher leverage does not reduce investment; in fact, in these cases we find that higher debt may be associated with higher investment. Economic crises provoke the most problematic debt-overhang problems, and low investment rates can persist for two to three years after the recession has ended.
