IDEAS home Printed from https://ideas.repec.org/a/alu/journl/v2y2013i15p20.html
   My bibliography  Save this article

Underinvestment Problem: Romanian Evidence

Author

Listed:
  • Claudiu BoÅ£oc
  • Cosmin Enache

Abstract

This paper aims to provide Romanian firm-level evidence concerning the investment decisions - financial leverage - growth opportunities relation. Using traditional panel data techniques on a sample of 67 companies listed at Bucharest Stock Exchange, we found that increasing debt and firm size have a negative impact on investment decisions, while the sales growth is a catalyst for further investments.Our results confirm agency theories of corporate leverage and could offer guidance for portfolio investors, which should target small(er) listed companies which are growing and have low(er) levels of debt.

Suggested Citation

  • Claudiu BoÅ£oc & Cosmin Enache, 2013. "Underinvestment Problem: Romanian Evidence," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 2(15), pages 1-20.
    • Handle: RePEc:alu:journl:v:2:y:2013:i:15:p:20
    as

    Download full text from publisher

    File URL: http://oeconomica.uab.ro/upload/lucrari/1520132/20.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Baum, Christopher F. & Caglayan, Mustafa & Talavera, Oleksandr, 2008. "Uncertainty determinants of firm investment," Economics Letters, Elsevier, vol. 98(3), pages 282-287, March.
    2. Byrne, Julie & O’Connor, Thomas, 2012. "Creditor rights and the outcome model of dividends," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 227-242.
    3. Stulz, ReneM., 1990. "Managerial discretion and optimal financing policies," Journal of Financial Economics, Elsevier, vol. 26(1), pages 3-27, July.
    4. Beck, Nathaniel & Katz, Jonathan N., 1995. "What To Do (and Not to Do) with Time-Series Cross-Section Data," American Political Science Review, Cambridge University Press, vol. 89(3), pages 634-647, September.
    5. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
    6. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    7. Lang, Larry & Ofek, Eli & Stulz, Rene M., 1996. "Leverage, investment, and firm growth," Journal of Financial Economics, Elsevier, vol. 40(1), pages 3-29, January.
    8. Daniel Hoechle, 2007. "Robust standard errors for panel regressions with cross-sectional dependence," Stata Journal, StataCorp LP, vol. 7(3), pages 281-312, September.
    9. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    10. Ahn, Seoungpil & Denis, David J. & Denis, Diane K., 2006. "Leverage and investment in diversified firms," Journal of Financial Economics, Elsevier, vol. 79(2), pages 317-337, February.
    11. Aivazian, Varouj A. & Ge, Ying & Qiu, Jiaping, 2005. "The impact of leverage on firm investment: Canadian evidence," Journal of Corporate Finance, Elsevier, vol. 11(1-2), pages 277-291, March.
    12. McConnell, John J. & Servaes, Henri, 1995. "Equity ownership and the two faces of debt," Journal of Financial Economics, Elsevier, vol. 39(1), pages 131-157, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Surabhi Somya & Madhuri Saripalle, 2023. "The Determinants of Firm’s Growth in the Telecommunication Services Industry: Empirical Evidence from India," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 21(1), pages 193-211, March.
    2. Sorin Gabriel ANTON, 2016. "The Impact Of Leverage On Firm Growth. Empirical Evidence From Romanian Listed Firms," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 18, pages 147-158, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Firth, Michael & Lin, Chen & Wong, Sonia M.L., 2008. "Leverage and investment under a state-owned bank lending environment: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 14(5), pages 642-653, December.
    2. Tiago Loncan & Styliani Panetsidou & Angelos Synapis, 2024. "Leverage, investment and institutional environments: Evidence from emerging markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 849-866, January.
    3. Jiang, Wei & Zeng, Yeqin, 2014. "State ownership, bank loans, and corporate investment," International Review of Economics & Finance, Elsevier, vol. 32(C), pages 92-116.
    4. Ning Ding & Kalimullah Bhat & Khalil Jebran, 2020. "Debt choice, growth opportunities and corporate investment: evidence from China," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-22, December.
    5. Lin Gan & Takahashi Yoshifumi & Nomura Hisako & Yabe Mitsuyasu, 2024. "The short‐ and long‐term impacts of overinvestments on the profitability of agri‐food processing firms in China," Agribusiness, John Wiley & Sons, Ltd., vol. 40(1), pages 227-247, January.
    6. Vinh Q. T. Dang & Isaac Otchere & Erin P. K. So & Isabel K. M. Yan, 2021. "Not all shadow banking is bad! Evidence from credit intermediation of non-financial Chinese firms," Review of Quantitative Finance and Accounting, Springer, vol. 57(4), pages 1437-1462, November.
    7. Sai Ding & Alessandra Guariglia & John Knight & Junhong Yang, 2021. "Negative Investment in China: Financing Constraints and Restructuring versus Growth," Economic Development and Cultural Change, University of Chicago Press, vol. 69(4), pages 1411-1449.
    8. Pablo de Andrés-Alonso & Valentín Azofra-Palenzuela & Juan A. Rodríguez-Sanz, 2000. "Endeudamiento, oportunidades de crecimiento y estructura contractual: un contraste empírico para el caso español," Investigaciones Economicas, Fundación SEPI, vol. 24(3), pages 641-679, September.
    9. Daisuke Tsuruta, 2015. "Leverage and firm performance of small businesses: evidence from Japan," Small Business Economics, Springer, vol. 44(2), pages 385-410, February.
    10. Darioush Damouri & Jamal Barzegari Khanagha & Mahin Kaffash, 2013. "The Relationship between Changes in the Financial Leverage and the Values of the Tehran Listed Firms," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 3(3), pages 198-210, July.
    11. Khémiri, Wafa & Noubbigh, Hédi, 2020. "Does sub-Saharan Africa overinvest? Evidence from a panel of non-financial firms," The Quarterly Review of Economics and Finance, Elsevier, vol. 77(C), pages 118-130.
    12. Lewis, Craig M. & Rogalski, Richard J. & Seward, James K., 2003. "Industry conditions, growth opportunities and market reactions to convertible debt financing decisions," Journal of Banking & Finance, Elsevier, vol. 27(1), pages 153-181, January.
    13. Ramzi Benkraiem & Mondher Bouattour & Anthony Miloudi & Ludovic Vigneron, 2017. "Corporate leverage and the terms of employment: evidence from French small businesses before and during the global crisis," Applied Economics, Taylor & Francis Journals, vol. 49(23), pages 2286-2297, May.
    14. Jiang, Zhan & Kim, Kenneth A., 2013. "Financial management in China," Journal of Multinational Financial Management, Elsevier, vol. 23(3), pages 125-133.
    15. Doukas, John A. & Pantzalis, Christos, 2003. "Geographic diversification and agency costs of debt of multinational firms," Journal of Corporate Finance, Elsevier, vol. 9(1), pages 59-92, January.
    16. Ahn, Seoungpil & Denis, David J. & Denis, Diane K., 2006. "Leverage and investment in diversified firms," Journal of Financial Economics, Elsevier, vol. 79(2), pages 317-337, February.
    17. Cai, Jie & Zhang, Zhe, 2011. "Leverage change, debt overhang, and stock prices," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 391-402, June.
    18. Matthias Nnadi & Vachiraporn Surichamorn & Ranadeva Jayasekera & Yacine Belghitar, 2022. "Empirical analysis of debt maturity, cash holdings and firm investment in developing economies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 3345-3372, July.
    19. Karren Lee-Hwei Khaw & Benjie Chien Jiang Lee, 2016. "Debt Maturity, Underinvestment Problem and Corporate Value," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 12(Suppl. 1), pages 1-1–17.
    20. Jones, Steven L. & Yeoman, John C., 2012. "Bias in estimating the systematic risk of extreme performers: Implications for financial analysis, the leverage effect, and long-run reversals," Journal of Corporate Finance, Elsevier, vol. 18(1), pages 1-21.

    More about this item

    Keywords

    Investment Rate; Financial Leverage; Growth Opportunities; Endogeneity;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:alu:journl:v:2:y:2013:i:15:p:20. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dan-Constantin Danuletiu (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.