Leverage, investment and institutional environments: Evidence from emerging markets

Research output: Contribution to journalArticlepeer-review

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.
Original languageEnglish
Pages (from-to)849-866
Number of pages18
JournalInternational Journal of Finance & Economics
Volume29
Issue number1
Early online date4 Oct 2022
DOIs
Publication statusPublished - Jan 2024

Bibliographical note

Publisher Copyright:
© 2022 John Wiley & Sons Ltd.

Keywords

  • Capital structure
  • Institutional quality
  • Investment
  • Leverage
  • Ownership concentration
  • Emerging markets

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