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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
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    File URL: http://oeconomica.uab.ro/upload/lucrari/1520132/20.pdf
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    References listed on IDEAS

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    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.
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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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