When Government Borrows Heavily, Firms Reduce Leverage

摘要

Most governments in developed countries responded to the financial crisis of 2008 by pursuing expansionary fiscal policies, raising budget deficits and issuing government debt. Some warned that growing supplies of government debt might have unintended consequences in the realm of corporate finance. In Government Debt and Corporate Leverage: International Evidence (NBER Working Paper No. 23310), Irem Demirci, Jennifer Huang, and Clemens Sialm find robust evidence of "crowding out," a tendency for higher levels of government debt to reduce the level of corporate borrowing.