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 language | English |
|---|---|
| Pages (from-to) | 849-866 |
| Number of pages | 18 |
| Journal | International Journal of Finance & Economics |
| Volume | 29 |
| Issue number | 1 |
| Early online date | 4 Oct 2022 |
| DOIs | |
| Publication status | Published - 10 Jan 2024 |
Bibliographical note
This is the peer reviewed version of the following article: Loncan, T, Panetsidou, S & Synapis, A 2024, 'Leverage, investment and institutional environments: Evidence from emerging markets', International Journal of Finance & Economics, vol. 29, no. 1, pp. 849-866., which has been published in final form at https://doi.org/10.1002/ijfe.2710. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. This article may not be enhanced, enriched or otherwise transformed into a derivative work, without express permission from Wiley or by statutory rights under applicable legislation. Copyright notices must not be removed, obscured or modified. The article must be linked to Wiley’s version of record on Wiley Online Library and any embedding, framing or otherwise making available the article or pages thereof by third parties from platforms, services and websites other than Wiley Online Library must be prohibited.This document is the author’s post-print version, incorporating any revisions agreed during the peer-review process. Some differences between the published version and this version may remain and you are advised to consult the published version if you wish to cite from it.
Keywords
- capital structure
- emerging markets
- institutional quality
- investment
- leverage
- ownership concentration