Abstract
This paper surveys the literature to document the main stylized facts, risks, and policy challenges related to the expansion of global nonfinancial corporate debt after the 2008–09 global financial crisis. Nonfinancial corporate debt steadily increased after the crisis, especially in emerging economies. Between 2008 and 2018, corporate debt increased from 56 to 96 percent of gross domestic product in emerging economies, whereas this ratio remained stable in developed economies. Nonfinancial corporate debt was mainly issued through bond markets, and its growth can be largely attributed to accommodative monetary policies in developed economies. Whereas increased debt financing has some positive aspects, it has also amplified firms’ solvency risks and exposure to changes in market conditions, such as the economic downturn triggered by the COVID-19 pandemic. Because capital markets have a larger role in firm financing, policy makers have limited tools to mitigate the risks of growing firm debt.
Highlights
The level of global debt substantially increased after the 2008-09 global financial crisis (GFC)
Whereas financial sector debt and household debt were important drivers of the buildup of global debt leading to the GFC, they did not contribute to the increase in global debt in the post-crisis period
Drivers of Nonfinancial Corporate Debt It seems important to understand what changed after the GFC that prompted emerging market firms to increase their debt, through the issuance of new bonds
Summary
The level of global debt substantially increased after the 2008-09 global financial crisis (GFC). The rise in nonfinancial corporate debt increased the levels of financial risk among emerging market firms in the years following the GFC, there are some mitigating factors. Drivers of Nonfinancial Corporate Debt It seems important to understand what changed after the GFC that prompted emerging market firms to increase their debt, through the issuance of new bonds. Whereas indicators such as debt-at-risk and the CVI can provide useful insights on how corporate vulnerability increased over time, their levels do not provide information on whether corporate vulnerability in emerging economies has become dangerously high or not This type of assessment might require analyzing how financial indicators among emerging market firms compare relative to other crisis periods. A large share of debt held by highly speculative investors (the so-called “vulture funds”) could hinder efforts to renegotiate the outstanding debt in case of default
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