The driving factors of firm investment: Latin American evidence

Viviana Fernandez

doi:10.2753/REE1540-496X470501

The driving factors of firm investment: Latin American evidence

Viviana Fernandez

Business School

Research output: Contribution to journal › Article › peer-review

7 Scopus citations

Abstract

The finance literature has extensively documented the role of debt in influencing corporate investment decisions. This study focuses on testing two well-known hypotheses-on underinvestment and overinvestment-in three emerging countries: Chile, Brazil, and Mexico during the period 1997-2006. Our main findings show that for the average firm there is a strong and inverse relation between investment and long-term leverage. Moreover, for low-growth firms there exists an inverse and statistically significant association between investment and asset maturity. This evidence suggests that the disciplinary role of debt financing, stressed by the overinvestment hypothesis, seems more congruent with the data.

Original language	English
Pages (from-to)	4-26
Number of pages	23
Journal	Emerging Markets Finance and Trade
Volume	47
Issue number	5
DOIs	https://doi.org/10.2753/REE1540-496X470501
State	Published - 1 Sep 2011

Keywords

GMM
asset maturity
censoring
firm investment
random effects

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10.2753/REE1540-496X470501

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title = "The driving factors of firm investment: Latin American evidence",

abstract = "The finance literature has extensively documented the role of debt in influencing corporate investment decisions. This study focuses on testing two well-known hypotheses-on underinvestment and overinvestment-in three emerging countries: Chile, Brazil, and Mexico during the period 1997-2006. Our main findings show that for the average firm there is a strong and inverse relation between investment and long-term leverage. Moreover, for low-growth firms there exists an inverse and statistically significant association between investment and asset maturity. This evidence suggests that the disciplinary role of debt financing, stressed by the overinvestment hypothesis, seems more congruent with the data.",

keywords = "GMM, asset maturity, censoring, firm investment, random effects",

author = "Viviana Fernandez",

note = "Funding Information: Viviana Fernandez ([email protected]) is a full professor in the Business School at Uni-versidad Adolfo Ib{\'a}{\~n}ez, Santiago, Chile. Financial support from FONDECYT Grant no. 1070762 is gratefully acknowledged. All remaining errors are the author{\textquoteright}s.",

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PY - 2011/9/1

Y1 - 2011/9/1

N2 - The finance literature has extensively documented the role of debt in influencing corporate investment decisions. This study focuses on testing two well-known hypotheses-on underinvestment and overinvestment-in three emerging countries: Chile, Brazil, and Mexico during the period 1997-2006. Our main findings show that for the average firm there is a strong and inverse relation between investment and long-term leverage. Moreover, for low-growth firms there exists an inverse and statistically significant association between investment and asset maturity. This evidence suggests that the disciplinary role of debt financing, stressed by the overinvestment hypothesis, seems more congruent with the data.

AB - The finance literature has extensively documented the role of debt in influencing corporate investment decisions. This study focuses on testing two well-known hypotheses-on underinvestment and overinvestment-in three emerging countries: Chile, Brazil, and Mexico during the period 1997-2006. Our main findings show that for the average firm there is a strong and inverse relation between investment and long-term leverage. Moreover, for low-growth firms there exists an inverse and statistically significant association between investment and asset maturity. This evidence suggests that the disciplinary role of debt financing, stressed by the overinvestment hypothesis, seems more congruent with the data.

KW - GMM

KW - asset maturity

KW - censoring

KW - firm investment

KW - random effects

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The driving factors of firm investment: Latin American evidence

Abstract

Keywords

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