When does leverage hurt productivity growth? A firm-level analysis:a firm-level analysis


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.

Publication DOI: https://doi.org/10.1016/j.jimonfin.2012.03.006
Divisions: College of Business and Social Sciences > Aston Business School > Economics, Finance & Entrepreneurship
College of Business and Social Sciences > Aston Business School > Aston India Foundation for Applied Research
College of Business and Social Sciences > Aston Business School
Additional Information: NOTICE: this is the author’s version of a work that was accepted for publication in Journal of international money and finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Coricelli, F, Driffield, N, Pal, S & Roland, I, 'When does leverage hurt productivity growth? A firm-level analysis' Journal of international money and finance, vol 31, no. 6 (2012) DOI 10.1016/j.jimonfin.2012.03.006
Uncontrolled Keywords: trade-off theory,optimal leverage,TFP growth,non-linear relationships,threshold regression,transition economies,Economics and Econometrics,Finance
Publication ISSN: 1873-0639
Last Modified: 01 Mar 2024 08:09
Date Deposited: 11 Mar 2019 18:23
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Related URLs: http://www.scop ... tnerID=8YFLogxK (Scopus URL)
PURE Output Type: Article
Published Date: 2012-10
Authors: Coricelli, Fabrizio
Driffield, Nigel (ORCID Profile 0000-0003-1056-3117)
Pal, Sarmistha
Roland, Isabelle



Version: Accepted Version

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