Alessandro Zona Mattioli (Vrije Universiteit Amsterdam)

A Structural Break in EU Corporate Leverage Trends

Abstract: Contrary to concerns about rising corporate indebtedness, we show that corporate leverage has steadily declined over the past two decades for most EU firms. This trend has happened despite an environment of low interest rates and abundant liquidity until 2020 and has coincided with rising cash holdings and profitability. We evaluate two prominent explanations—bank credit tightening and secular stagnation—but find little support for constrained liquidity or credit supply as the primary driver. Instead, we argue that the growing role of internally developed intangible capital provides a more compelling account. Our framework not only explains the observed reduction in debt ratios, but also sheds light on related phenomena such as rising market power and slowing business dynamism. Finally, we revisit the conventional view that intangible assets depress leverage through poor collateral value. Exploiting variation in firms’ exposure to tighter collateral standards, we show that highly intangible firms actually experience smaller leverage declines when banks tighten lending. This pattern points toward alternative mechanisms—such as lower cash-in-advance requirements for intangible investment—by which intangible-intensive firms finance growth with less debt.