Excess Leverage and Productivity Growth in Emerging Economies: Is There a Threshold Effect?

47 Pages Posted: 22 Mar 2010

See all articles by Fabrizio Coricelli

Fabrizio Coricelli

University of Siena - Department of Political and International Sciences ; Paris School of Economics (PSE); Centre for Economic Policy Research (CEPR)

Nigel L. Driffield

Aston University - Aston Business School

Sarmistha Pal

University of Surrey; IZA Institute of Labor Economics

Isabelle Roland

European Bank for Reconstruction and Development (EBRD)

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Abstract

The paper examines the relationship between leverage and growth in a group of emerging central and eastern European countries, who are at different levels of financial market development. We hypothesize a non-linear relationship in that moderate leverage could boost growth while very high leverage could lower it by increasing the likelihood of financial distress and bankruptcy. Estimates of a Threshold model confirm the non-linear relationship in our sample, after controlling for various firm, industry and financial market characteristics. We also endogenously determine a threshold level of leverage beyond which further increases in leverage could lower TFP growth.

Keywords: excess leverage, bank efficiency, market capitalization, TFP growth, Threshold model, non-linear relationship, transition experience

JEL Classification: G32, O16

Suggested Citation

Coricelli, Fabrizio and Driffield, Nigel L. and Pal, Sarmistha and Roland, Isabelle, Excess Leverage and Productivity Growth in Emerging Economies: Is There a Threshold Effect?. IZA Discussion Paper No. 4834, Available at SSRN: https://ssrn.com/abstract=1575887

Fabrizio Coricelli (Contact Author)

University of Siena - Department of Political and International Sciences ( email )

Via Mattioli, 10
Siena, 53100
Italy

Paris School of Economics (PSE)

48 Boulevard Jourdan
Paris, 75014 75014
France

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Nigel L. Driffield

Aston University - Aston Business School ( email )

Aston Triangle
Birmingham, B47ET
United Kingdom

HOME PAGE: http://www.abs.aston.ac.uk/newweb/staff/Default.asp#E&S

Sarmistha Pal

University of Surrey ( email )

Stag Hill
Guildford, England GU2 7XH
United Kingdom
01483 683995 (Phone)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Isabelle Roland

European Bank for Reconstruction and Development (EBRD) ( email )

One Exchange Square
London, EC2A 2EH
United Kingdom

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