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Underinvestment Problem: Romanian Evidence

Author

Listed:
  • Claudiu Botoc

    (West University of Timisoara Romania)

  • Cosmin Enache

    (West University of Timisoara Romania)

Abstract

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

Suggested Citation

  • Claudiu Botoc & 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
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    File URL: http://oeconomica.uab.ro/upload/lucrari/1520132/20.pdf
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    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. 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.
    4. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. 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.

    More about this item

    Keywords

    Investment Rate; Financial Leverage; Growth Opportunities; Endogeneity;

    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

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