Leverage and Corporate Investment - Evidence from Vietnam

Abstract

This paper explores the link between financial leverage and corporate investment in the context of an emerging market. We use a panel data set of firms listed on the Ho Chi Minh City stock exchange over the period 2006–2015. We employ a fixed effects econometric technique of panel data analysis. Consistent with previous studies, our results reveal a negative link between leverage and investment. This implies that debt disciplinarily constrains corporate investment. However, contrary to previous studies, we find that leverage has a stronger negative impact on corporate investment for firms with high growth opportunities than for firms with low growth opportunities. This finding has relevant implications in the context of emerging markets.