Investment Patterns and Financial Leverage
AbstractThis 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.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1145.
Date of creation: Jun 1983
Date of revision:
Publication status: published as Michael S. Long, Ileen B. Malitz. "Investment Patterns and Financial Leverage," in Benjamin M. Friedman, ed., "Corporate Capital Structures in the United States" University of Chicago Press (1985)
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Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
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