Financial Revenues, Financial Leverage, Debt Maturity, Uncertainty and the Underinvestment Problem

Abdul Majid Nasir, Rozaimah Zainudin () and Aidil Rizal Shahrin
Additional contact information
Abdul Majid Nasir: Faculty of Business and Economics, University of Malaya, Kuala Lumpur
Rozaimah Zainudin: Faculty of Business and Economics, University of Malaya, Kuala Lumpur
Aidil Rizal Shahrin: Faculty of Business and Economics, University of Malaya, Kuala Lumpur

Czech Journal of Economics and Finance (Finance a uver), 2022, vol. 72, issue 1, 71-101

Abstract: The underinvestment problem has become prominent among non-financial firms in the US over the previous two decades. This study investigates whether financial revenues have contributed to the underinvestment issue. Additionally, we examine whether financial leverage, debt maturity and uncertainty alter the relationship between financial revenues and underinvestment. Using a panel of firm-level data of US non-financial firms from 1999 to 2018, we estimate the cumulant estimator to identify the relationships. Our findings show that financial revenues significantly increase the underinvestment problem. However, financial leverage and debt maturity do not play important roles in the effect of financial revenues on underinvestment. In contrast, uncertainty assists financial revenues in increasing the underinvestment problem, especially for highly uncertain firms. Our results are robust to alternative investment opportunities and uncertainty proxies, alternative estimation methods, and an alternative economic model.

Keywords: Financial revenues; financial leverage; debt maturity; uncertainty; underinvestment (search for similar items in EconPapers)
JEL-codes: D25 D80 D81 G30 G31 M2 (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
https://journal.fsv.cuni.cz/mag/article/show/id/1497 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fau:fauart:v:72:y:2022:i:1:p:71-101

Access Statistics for this article

More articles in Czech Journal of Economics and Finance (Finance a uver) from Charles University Prague, Faculty of Social Sciences Contact information at EDIRC.
Bibliographic data for series maintained by Natalie Svarcova ().