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

Author

Listed:
  • Eghbalnia , Mohammad

    (Hafez Brokerage Co.)

  • Fadayinejad , Mohammad Esmaeel

    (Shahid Beheshti University, Department of Management & Accounting)

  • Noferesti , Mohammad

    (Shahid Beheshti University, Deparment of Economics)

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.

Suggested Citation

  • Eghbalnia , Mohammad & Fadayinejad , Mohammad Esmaeel & Noferesti , Mohammad, 2013. "The Impact of Leverage on Firm Investment: Evidence from Tehran Stock Exchange," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 8(4), pages 59-73, October.
    • Handle: RePEc:mbr:jmonec:v:8:y:2013:i:4:p:59-73
    as

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    References listed on IDEAS

    as
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    Cited by:

    1. Mojdeh , Zahra & Tehranchian , Amir Mansour & Jafari Samimi , Ahmad & Rasekhi , Saeed, 2020. "Analyzing the Impact of Leverage Rate on Export Survival: The Case of Iranian Firms," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 15(1), pages 25-34, January.

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    More about this item

    Keywords

    Financial Leverage; Firm Investment; Growth Opportunities; Under-investment; Over-investment;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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