Investment Patterns and Financial Leverage

Michael S. Long and Ileen B. Malitz

No 1145, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This study Investigates the influence of the type of investment opportunities facing a firm on its choice of capital structure. It is shown that the more discretionary investment opportunities a firm faces,the lower its financial leverage. Inclusion of other possible determinants of capital structure, such as availability of internal funds, tax effects and risk, while significant, do not affect the importance of discretionary investment. The evidence supports (1) the existence of a moral bazzard problem which inversely relates risky debt and discretionary investment choice, and (2) a desire by most firms to use sources of internal funds prior to entering the capital market.

Date: 1983-06
Note: ME
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Published as Long, Michael S. and Ileen B. Malitz. "Investment Patterns and Financial Leverage." Corporate Capital Structures in the United States, edited by Benjamin M. Friedman. Chicago: Univ. of Chicago Press, (1985), pp. 353-37 7.
Published as Investment Patterns and Financial Leverage , Michael S. Long, Ileen B. Malitz. in Corporate Capital Structures in the United States , Friedman. 1985

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