Abstract
The paper aims to investigate the effect of financial leverage on companies’ investment decisions in the selected emerging countries. To understand the investment/borrowing relationship, in the post-2000 period, when borrowing rates increased throughout the world, we investigated the relationship between investment and borrowing by considering the underinvestment hypothesis of Myers (J Financ Econom. 5: 147–175, 1977). This study covers 15,400 observations in the period 2005–2015 examines firms of developing countries in different economic dynamics. The study results show that leverage has a significant negative effect on investment and that this connection is found reliable and valid with the panel regression and two-stage least squares models. Although the findings differ from country to country, the evidence supports Myers’ underinvestment theory that borrowing has a controlling role for companies with low enlargement opportunities in the emerged countries.
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Notes
- 1.
A Morgan Stanley financial analyst used the “Fragile Five” term for the emerging countries that are highly dependent on slippery foreign investments to finance their economic goals in 2013. They are Brazil, India, Indonesia, South Africa, and Turkey.
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Akca, T., Karan, M.B., Yıldız, Y. (2021). The Effect of Financial Leverage on Investment Decisions: The Evidence from Emerging Markets. In: Dinçer, H., Yüksel, S. (eds) Financial Strategies in Competitive Markets. Contributions to Finance and Accounting. Springer, Cham. https://doi.org/10.1007/978-3-030-68612-3_10
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