Abstract
We examine the link between investment and leverage internationally, bringing
evidence from 22 emerging economies. We show a negative effect of leverage
on investment that becomes stronger for low growth firms, in line with the
overinvestment hypothesis. We further find that the monitoring effect of leverage
on investment is stronger on firms operating in low regulatory quality and
corrupt environments. Finally, we show that the monitoring effect induced by
ownership concentration complements the monitoring effect of leverage on
investment. Overall, our results suggest that the increased debt levels reported
in emerging markets in recent years, act as a disciplinary tool against overinvestment,
especially in countries with weak institutional environments.
evidence from 22 emerging economies. We show a negative effect of leverage
on investment that becomes stronger for low growth firms, in line with the
overinvestment hypothesis. We further find that the monitoring effect of leverage
on investment is stronger on firms operating in low regulatory quality and
corrupt environments. Finally, we show that the monitoring effect induced by
ownership concentration complements the monitoring effect of leverage on
investment. Overall, our results suggest that the increased debt levels reported
in emerging markets in recent years, act as a disciplinary tool against overinvestment,
especially in countries with weak institutional environments.
| Original language | English |
|---|---|
| Pages (from-to) | 849-866 |
| Number of pages | 18 |
| Journal | International Journal of Finance and Economics |
| Volume | 29 |
| Issue number | 1 |
| Early online date | 4 Oct 2022 |
| DOIs | |
| Publication status | Published - 2024 |
