On the heterogeneity of the long-term leverage-growth relationship: A cross-country analysis of manufacturing firms

Article  -  Thursday, 1 December 2022

Cattaruzzo, S. and Teruel, M. (2022): "On the heterogeneity of the long-term leverage-growth relationship: A cross-country analysis of manufacturing firms", Structural Change and Economics Dynamics

Despite a great deal of studies, the relationship between firm leverage and its impact on growth remains still unclear. We offer an analytical framework, which based on a comprehensive literature review and of related empirical reasoning, helps explaining the long-term leverage and firm growth nexus. Both the theoretical views and empirical evidence are mixed, and the lack of consensus may be the result of inconsistent estimation techniques and of the dual interpretation that firm leverage has.

Analysing debt from credit institutions to firms in France, Italy, and Spain, and observed from 2010 to 2016, we bring a selection framework to trial. The comparative perspective seeks the establishment of regularities, while the use of a dynamic quantile panel estimator unravels its heterogeneity.

Strong non-linearities are detected, but the selection framework finds no support. Indeed, only firms in the lowest-growing deciles of the growth distributions benefit consistently from leverage. On the contrary, the impact on the right part of the growth distribution is either non-significant or negative

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