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The Impact of Leverage on Firm Investment: Evidence from Tehran Stock Exchange

Mohammad Eghbalnia (), Mohammad Esmaeel Fadayinejad and Mohammad Noferesti
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Mohammad Eghbalnia : Hafez Brokerage Co.
Mohammad Esmaeel Fadayinejad : Shahid Beheshti University, Department of Management & Accounting
Mohammad Noferesti : Shahid Beheshti University, Deparment of Economics

Journal of Money and Economy, 2013, vol. 8, issue 4, 59-73

Abstract: The impact of financial leverage on firm investment is one of the most important issues in corporate finance. Debt overhang reduces the incentives of shareholder-management coalition in controlling the firm to invest in positive net-present-value investment opportunities. On the other hand, firms without debt in their financial structure face with a new problem known as over-investment. This study uses regression analysis to survey the effects of financial leverage on investment decisions of TSE firms between years 2001-2010. The results show that in contrary to previous findings in literature, when using total liabilities to total assets as the measure of leverage, there is no relationship between the two parameters and by using long term debt to total assets, we see a positive impact.

Keywords: Financial Leverage; Firm Investment; Growth Opportunities; Under-investment; Over-investment (search for similar items in EconPapers)
JEL-codes: C10 C15 C21 C23 (search for similar items in EconPapers)
Date: 2013
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Handle: RePEc:mbr:jmonec:v:8:y:2013:i:4:p:59-73