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ABSTRACT
In this study, we investigate whether debt overhang may contribute to explaining the declining growth rate of investment in China. By using firm-level data, we find a nonlinear firm debt–investment relationship and derive thresholds beyond which debt has a negative and significant impact on investment, which supports the theory of debt overhang.
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Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1 To solve the issue of different orders of magnitude in variable values, we adopt the approach proposed by Hansen (Citation1999) and multiply all independent variables by 103 in the estimation. To tackle the issue of endogenous variables, this study uses the lagged explaining variables in the estimation.
Additional information
Funding
We would like to thank the foundation from the National Natural Science Foundation of China (71673312) for financial support of this research.