Hostname: page-component-84b7d79bbc-c654p Total loading time: 0 Render date: 2024-07-28T21:07:53.315Z Has data issue: false hasContentIssue false
  • English
  • Français

Debt-oriented Capital Structure and Economic Growth: Panel Evidence for OECD Countries

Published online by Cambridge University Press:  19 June 2019

Syed Munawar Shah ,
Mariani Abdul-Majid  and
Zulkefly Abdul Karim
Syed Munawar Shah
Affiliation:
Faculty of Management Sciences, Balochistan University of Information Technology, Engineering and Management Sciences BUITEMS, City Campus, 87300, Quetta, Pakistan. Email: s.munawarshah@gmail.com and syed.munawar@buitms.edu.pk
Mariani Abdul-Majid
Affiliation:
Faculty of Economics and Management, Universiti Kebangsaan Malaysia, 43600, UKM Bangi, Selangor, Malaysia
Zulkefly Abdul Karim
Affiliation:
Faculty of Economics and Management, Universiti Kebangsaan Malaysia, 43600, UKM Bangi, Selangor, Malaysia
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper examines the relationship between debt-oriented capital structure and economic growth by analysing a panel data of 16 European countries, based on the availability of data. We find that the corporate leverage in financial and non-financial corporations affects economic growth negatively. Furthermore, the results indicate that the leverage in non-financial corporations affects economic growth more than the leverage in financial corporations. This is due to the direct relationship between economic growth and the real sector and the fact that non-financial corporations in OECD countries hold more debt as compared with financial corporations.

Type
Articles
Information
European Review , Volume 27 , Issue 4 , October 2019 , pp. 519 - 542
Copyright
© Academia Europaea 2019 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

De Mooij, R.A. (2012) Tax biases to debt finance: Assessing the problem, finding solutions. Fiscal Studies, 33(4), pp. 489–512.CrossRefGoogle Scholar
De Mooij, R.A. and Devereux, M.P. (2011) An applied analysis of ACE and CBIT reforms in the EU. International Tax and Public Finance, 18(1), pp. 93–120.CrossRefGoogle Scholar
De Mooij, R.A., Keen, M.M. and Orihara, M.M. (2013) Taxation, Bank Leverage, and Financial Crises (Washington, DC: International Monetary Fund).CrossRefGoogle Scholar
Fatica, S., Hemmelgarn, T. and Nicodème, G. (2013) The Debt-Equity Tax Bias: Consequences and Solutions (Brussels, Belgium: De Boeck Supérieur).Google Scholar
Keen, M. and King, J. (2003) The Croatian profit tax: An ACE in practice. In Integriertes Steuer-und Sozialsystem (Switzerland: Springer), pp. 323–342.CrossRefGoogle Scholar
Radulescu, D. and Stimmelmayr, M. (2007) ACE versus CBIT: Which is better for investment and welfare? CESifo Economic Studies, 53(2), pp. 294–328.CrossRefGoogle Scholar
Solow, R.M. (1956) A contribution to the theory of economic growth. The Quarterly Journal of Economics, 70(1), pp. 65–94.CrossRefGoogle Scholar
Solow, R.M. (1970) Growth Theory (Oxford, UK: Clarendon Press).Google Scholar
Swan, T.W. (1956) Economic growth and capital accumulation. Economic Record, 32(2), pp. 334–361.CrossRefGoogle Scholar
Beck, T., Levine, R. and Loayza, N. (2000) Finance and the sources of growth. Journal of Financial Economics, 58(1), pp. 261–300.CrossRefGoogle Scholar
Gordon, R.H. and Lee, Y. (2001) Do taxes affect corporate debt policy? Evidence from US corporate tax return data. Journal of Public Economics, 82(2), pp. 195–224.CrossRefGoogle Scholar
Kumar, M. and Woo, J. (2010) Public debt and growth. IMF Working Paper.Google Scholar
Romer, D. and Chow, C. (1996) Advanced Macroeconomic Theory (Pennsylvania, USA: McGraw-Hill).Google Scholar
Schumpeter, J. (1942) Creative destruction. In Capitalism, Socialism and Democracy, 825.Google Scholar
Strebulaev, I.A. and Yang, B. (2013) The mystery of zero-leverage firms. Journal of Financial Economics, 109(1), pp. 1–23.CrossRefGoogle Scholar
European Commission (2012) Growth-Friendly Tax Polices in Member States and Better Tax Coordination in the EU (Brussels, Belgium: European Commission).Google Scholar
IMF (2009) Global Financial Stability Report (Washington, DC: IMF).Google Scholar
Stiglitz, J.E. (1985) Credit markets and the control of capital. Journal of Money, Credit and Banking, 17(2), pp. 133–152.CrossRefGoogle Scholar
Stiglitz, J.E. (2001) Credit rationing in markets with imperfect information. Unpublished Manuscript.Google Scholar
Gale, D. and Hellwig, M. (1985) Incentive-compatible debt contracts: The one-period problem. The Review of Economic Studies, 52(4), pp. 647–663.CrossRefGoogle Scholar
Townsend, R.M. (1979) Optimal contracts and competitive markets with costly state verification. Journal of Economic Theory, 21(2), pp. 265–293.CrossRefGoogle Scholar
Myers, S.C. (1993) Still searching for optimal capital structure. Journal of Applied Corporate Finance, 6(1), pp. 4–14.CrossRefGoogle Scholar
Diamond, D.W. (1984) Financial intermediation and delegated monitoring. The Review of Economic Studies, 51(3), pp. 393–414.CrossRefGoogle Scholar
OECD-i-Library (2016) www.oecd-ilibrary.org/ Google Scholar
Feenstra, R.C., Inklaar, R. and Timmer, M.P. (2015) The next generation of the Penn World Table. American Economic Review, 105(10), pp. 3150–3182.CrossRefGoogle Scholar
The World Bank (2016) World Development Indicators. http://data.worldbank.org/data-catalog/world-development-indicators.Google Scholar
Turnovsky, S.J. (2003) Old and new growth theories: A unifying structure? In Old and New Growth Theories: An Assessment (Cheltenham, UK: Edward Elgar), pp. 1–43.Google Scholar
Lee, Y. and Gordon, R.H. (2005) Tax structure and economic growth. Journal of Public Economics, 89(5), pp. 1027–1043.CrossRefGoogle Scholar
Barro, R.J. (1990) Government spending in a simple model of endogeneous growth. Journal of Political Economy, 98, pp. S103–S125.CrossRefGoogle Scholar
Breitung, J. (2002) Nonparametric tests for unit roots and cointegration. Journal of Econometrics, 108(2), pp. 343–363.CrossRefGoogle Scholar
Hlouskova, J. and Wagner, M. (2005) The Performance of Panel Unit Root and Stationarity Tests (San Domenico: European University Institute).Google Scholar
Maddala, G.S. and Wu, S. (1999) A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and Statistics, 61(S1), pp. 631–652.CrossRefGoogle Scholar
Im, K.S., Pesaran, M.H. and Shin, Y. (1997) Testing for Unit Roots in Heterogeneous Panels (Department of Applied Economics, University of Cambridge).Google Scholar
Im, K.S., Pesaran, M.H. and Shin, Y. (2003) Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115(1), pp. 53–74.CrossRefGoogle Scholar
Blackburne, E.F. and Frank, M.W. (2007) Estimation of nonstationary heterogeneous panels. Stata Journal, 7(2), p. 197.CrossRefGoogle Scholar
Pesaran, M.H. and Smith, R. (1995) Estimating long-run relationships from dynamic heterogeneous panels. Journal of Econometrics, 68(1), pp. 79–113.CrossRefGoogle Scholar
Hausman, J.A. (1978) Specification tests in econometrics. Econometrica: Journal of the Econometric Society, pp. 1251–1271.CrossRefGoogle Scholar
Athanassiou, E. (2009) Fiscal policy and the recession: The case of Greece. Intereconomics, 44(6), pp. 364–372.SCrossRefGoogle Scholar
Bruno, M. and Easterly, W. (1996) Inflation and growth: In search of a stable relationship. Federal Reserve Bank of St. Louis Proceedings, May, pp. 139–146.Google Scholar