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Firm leverage and investment decisions in an emerging market

Umutlu, Mehmet



In this study, the effect of leverage on investment is analyzed by employing panel data methods for the Turkish non-financial firms that are quoted on İstanbul Stock Exchange. For one-way error component models, it is shown that there is a negative impact of leverage on investment for only firms with low Tobin’s Q. These results are in conformity with the previous literature and agency theories of corporate finance stating that leverage has a disciplining role for firms with low growth opportunities. However, when the model is extended to include the time effects in a two-way error component model, the relation between leverage and investment disappears.

Journal Article Type Article
Online Publication Date May 7, 2009
Publication Date 2010-08
Deposit Date Jan 29, 2023
Journal Quality & Quantity
Print ISSN 0033-5177
Electronic ISSN 1573-7845
Publisher Springer
Peer Reviewed Peer Reviewed
Volume 44
Issue 5
Pages 1005-1013
Keywords Leverage, Investment, Panel data, Emerging markets