Government Debt and Corporate Leverage: International Evidence
We investigate the impact of government debt on corporate financing decisions. We document a negative relation between government debt and corporate leverage using data on 40 countries between 1990 and 2014. This negative relation holds only for government debt that is financed domestically and is stronger for larger and more profitable firms and in countries with more developed equity markets. In order to address potential endogeneity concerns, we use an instrumental variable approach based on military spending and a quasi-natural experiment based on the introduction of the Euro currency. Our findings suggest that government debt crowds out corporate debt.
-
-
Copy CitationIrem Demirci, Jennifer Huang, and Clemens Sialm, "Government Debt and Corporate Leverage: International Evidence," NBER Working Paper 23310 (2017), https://doi.org/10.3386/w23310.Download Citation
Non-Technical Summaries
- Higher levels of government borrowing are associated with lower leverage ratios in the corporate sector. Most governments in...
Published Versions
Irem Demirci & Jennifer Huang & Clemens Sialm, 2019. "Government Debt and Corporate Leverage: International Evidence," Journal of Financial Economics, . citation courtesy of 
Related
Topics
More from the NBER
In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals — the NBER Reporter, the NBER Digest, the Bulletin on Health, and the Bulletin on Entrepreneurship — as well as online conference reports, video lectures, and interviews.
