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Exploring Corporate Capital Structure and Overleveraging in the Pharmaceutical Industry

Author

Listed:
  • Samar Issa

    (Department of Business Administration, Saint Peter’s University, Jersey City, NJ 07306, USA)

  • Hussein Issa

    (Department of Accounting and Information Systems, Rutgers University, Piscataway, NJ 08854, USA)

Abstract

This paper applies an empirical model of corporate capital structure, optimal debt, and overleveraging to estimate overleveraging measured as the difference between actual and optimal debt. Estimated using a sample of the twenty largest pharmaceutical firms, covering the time span from 2000 to 2018, the model sheds light on an industry-specific default risk. The analysis presented in this paper reveals a concerning trend in the pharmaceutical industry, with corporate excess debt steadily increasing over the past two decades, particularly peaking during the 2008 crisis and after 2013. These findings underscore the critical role of excess debt in exacerbating financial instability and highlight the pharmaceutical sector’s unique challenges, including high R&D intensity and regulatory pressures. By quantifying overleveraging and linking it to financial risk, the paper offers valuable policy implications, emphasizing the need for proactive management of optimal debt levels to mitigate default risks and enhance macroeconomic resilience.

Suggested Citation

  • Samar Issa & Hussein Issa, 2025. "Exploring Corporate Capital Structure and Overleveraging in the Pharmaceutical Industry," Risks, MDPI, vol. 13(2), pages 1-33, February.
    • Handle: RePEc:gam:jrisks:v:13:y:2025:i:2:p:26-:d:1582525
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    References listed on IDEAS

    as
    1. Mittnik, Stefan & Semmler, Willi, 2013. "The real consequences of financial stress," Journal of Economic Dynamics and Control, Elsevier, vol. 37(8), pages 1479-1499.
    2. Hussain Muhammad & Stefania Migliori & Sana Mohsni, 2022. "Corporate governance and R&D investment: the role of debt financing [Corporate governance and financing decisions of Ghanaian listed firms]," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 31(3), pages 628-653.
    3. Stein, Jerome L., 2010. "A tale of two debt crises: a stochastic optimal control analysis," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 4, pages 1-24.
    4. Unurjargal Nyambuu & Lucas Bernard, 2015. "A Quantitative Approach to Assessing Sovereign Default Risk in Resource‐Rich Emerging Economies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 20(3), pages 220-241, July.
    Full references (including those not matched with items on IDEAS)

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