What's stopping corporate investment in Europe?

Şebnem Kalemli-Özcan of the University of Maryland talks about debt overhang as a big contributor to the low investment that persists in Europe 10 years after the Crisis, and why a big data approach is the best way to solve the problem. Two million observations, matching firms to banks and banks to sovereigns in eight european countries show that 60% of the decline in aggregate corporate sector investment in Europe can be explained by debt overhang and suggest that policies such as bank recapitalisation or low interest rates are not enough - it is important to deal with the very indebted corporate sector.



Topics:  Financial regulation and banking Global crisis

Tags:  debt overhang, leverage, firm investment, global crisis

Neil Moskowitz Endowed Professor of Economics, University of Maryland; Research Fellow, CEPR


CEPR Policy Research