08 August 2013

ECB: Corporate finance and economic activity in the euro area – Structural issues report 2013

This report analyses and reviews the corporate finance structure of non-financial corporations (NFCs) in the euro area, including how they interact with the macro-economic environment. It echoes bank president Draghi's concerns about the need to make the eurozone banking system more resilient.

Special  emphasis is placed on the crisis that began in 2007-08, thus underlining the relevance of financing and credit conditions to investment and economic activity in turbulent times. When approaching such a broad topic, a number of key questions arise. How did the corporate sector’s capital structure, internal and external financing sources, and its tendency to leverage, evolve in the euro area over the last decade and in the run-up to the financial crisis in particular? Did these developments contribute to and/or exacerbate the financial crisis? Did the corporate sector’s response to various shocks and vulnerabilities support or encumber the euro area economy, both during the financial crisis and in its aftermath?

This report attempts to shed light on these and other key issues: first, through an analysis of firms’ internal and external financing and their financial situation based on euro area accounts data; second, by analysing key corporate finance decisions based on granular firm-level data; and third, by connecting corporate sector developments to developments in the economy as a whole. While primarily empirical, the assessment relies on insight and models taken from economic and corporate finance theory as a means of interpreting facts and evidence. The data available for this report generally cover the period 1999-2012, and the cut-off date for the statistics is 30 April, 2013. When drawing comparisons with previous historical crises, the data go back to the 1960s.

Full paper

Further reporting: Europe risks Japanese-style lost decade if banks not fixed - ECB study © Reuters

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