Cover IMF Working Papers
Scarring and Corporate Debt
Author:
Julia Estefania-Flores
Search for other papers by Julia Estefania-Flores in
Current site
Google Scholar
PubMedClose
,
Davide Furcerinull

Search for other papers by Davide Furceri in
Current site
Google Scholar
PubMedClose
,
Pablo Gonzalez-Dominguez
Search for other papers by Pablo Gonzalez-Dominguez in
Current site
Google Scholar
PubMedClose
,
Siddharth Kothari
Search for other papers by Siddharth Kothari in
Current site
Google Scholar
PubMedClose
, and
Nour Tawk
Search for other papers by Nour Tawk in
Current site
Google Scholar
PubMedClose
Series:
IMF Working Papers
Volume/Issue:
Volume 2022: Issue 211
Language:
English
Publication Date:
28 Oct 2022
DOI:
https://doi.org/10.5089/9798400225703.001
ISBN:
9798400225703
ISSN:
1018-5941
Pages:
54
Keywords:
Scarring; Corporate Debt; Recessions; Firms; Local Projection; scarring effect; debt dummy; debt firm; investment to recession; Economic recession; Capital spending; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Download PDF (6.1 MB) Download Epub
This paper estimates the scarring effect of recessions on corporates’ investment and how it is amplified by the level of corporate debt. Our results suggest that the effect of firms’ debt in shaping the response of investment to recessions is statistically significant and economically sizeable, with high debt firms seeing a larger decline in investment than low debt firms. Back-of-the-envelope calculations suggest that firms’ debt accounts for at least 28 percent of the average medium-term decline of investment following a recession. This effect is especially larger for firms that are credit constrained—small and less profitable firms, as well as firms with high share of short-term debt—and that therefore may find it more difficult to rollover or raise new funds to invest in new projects. The results are robust to several checks, including to various sub-samples, alternative measures of recessions and explanatory variables, and a large set of controls.
  • Collapse
  • Expand
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2022: Issue 211