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Investigating the corporate debt and real investment nexus: dynamics and challenges in a shifting financial landscape

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  • Bashir Ahmad JOO

    (University of Kashmir, India)

  • Simtiha Ishaq MIR

    (University of Kashmir, India)

Abstract

This paper studies the interrelationship between corporate debt and Real Investment in view of the pivotal role played by private debt in economic growth and development. With a focus on the financial intricacies and upcoming challenges faced by emerging markets, this paper investigates how corporate debt influences and shapes gross capital formation within emerging economies. The study finds a negative relation between the two variables with a one per cent increase in corporate debt to GDP ratio resulting in about 4 per cent decline in real investment in the short run and long run. Trade openness however has a positive coefficient, indicating that it has a stimulating impact on real investment within the economy. Through a comprehensive analysis, the study not only contributes to the existing body of knowledge but also offers valuable insights for crafting effective financial policies tailored to the unique challenges of these evolving markets.

Suggested Citation

  • Bashir Ahmad JOO & Simtiha Ishaq MIR, 2024. "Investigating the corporate debt and real investment nexus: dynamics and challenges in a shifting financial landscape," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(4(641), W), pages 297-308, Winter.
    • Handle: RePEc:agr:journl:v:xxxi:y:2024:i:4(641):p:297-308
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    References listed on IDEAS

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    1. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    2. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    3. Ben S. Bernanke, 2018. "The Real Effects of Disrupted Credit: Evidence from the Global Financial Crisis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 49(2 (Fall)), pages 251-342.
    4. Matthies, Alexander B., 2013. "Empirical research on corporate credit-ratings: A literature review," SFB 649 Discussion Papers 2013-003, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    5. Gebauer, Stefan & Setzer, Ralph & Westphal, Andreas, 2018. "Corporate debt and investment: A firm-level analysis for stressed euro area countries," Journal of International Money and Finance, Elsevier, vol. 86(C), pages 112-130.
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