DP7617 Excess Leverage and Productivity Growth in Emerging Economies: Is There A Threshold Effect?

• Fabrizio Coricelli Nigel Driffield Sarmistha Pal Isabelle Roland
20 Dec 2009

This paper studies the relationship between leverage and growth, focusing on a large sample of firms in emerging economies of central and eastern Europe (CEE). Contrary to the general wisdom, we find that deviation from optimal leverage, especially excess leverage, is common among firms in many CEE countries. Using firm-level panel data, the paper provides support to the hypothesis that leverage positively affects productivity growth but only below an endogenously determined threshold level.