Date of Award

5-2026

Document Type

Thesis

Degree Name

Bachelor of Arts (BA)

Department

Social Sciences

First Advisor

Khemraj, Tarron

Area of Concentration

Financial Economics

Abstract

This thesis examines the relationship between corporate leverage and private investment in the United States using quarterly macroeconomic data from 1971Q2 to 2025Q2. The framework employed consisted of an Engle-Granger cointegration framework and an error correction model (ECM), the analysis finds evidence of a consistent long-run equilibrium between corporate leverage and real gross private domestic investment as a share of GDP. The long-run estimates return a positive and statistically significant relationship. Conversely, the short-run ECM output shows that increases in leverage reduce investment, while both contemporaneous and lagged coefficients confirm a negative persistent effect. In addition, the error correction term indicates that approximately six percent of any deviation from the equilibrium is corrected. While the initial shock of higher leverage forces firms to pull back on capital expenditures, sustained debt expands long-run financing capacity, suggesting that policymakers be attentive to rapid buildups in corporate leverage.

Rights

The author has granted New College of Florida the nonexclusive right to archive, make accessible, and distribute for educational purposes this work in whole or in part in all forms of media, now or hereafter known. The copyright of this work remains with the author.

Download

Share

COinS