Impact of supply chain pressures on financial leverage

Abstract

This study investigates the impact of supply shocks on financial leverage (debt-equity ratio) in the U.S. economy from 1998:Q1 to 2024:Q2. The study employs a linear and non-linear Local Projections (LP) and Bayesian Vector Autoregression (BVAR) models to explore dynamic relationships. While the LP models reveal that a supply chain shock negatively affects leverage with statistically significant results, there is no evidence of state dependence. The BVAR model suggest that a supply chain shock is disruptive via reduction (an increase) in output (inflation), accompanied by lower leverage. • We estimate the impact of a supply chain shock on financial leverage for the U.S. • Empirical analysis is based on LP and BVAR model types. • LP models indicate a negative relationship between supply chain shocks and leverage,but no evidence of state dependence. • BVAR models confirm this relation with inflation pressures and lower output after supply chain shocks

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