TY - JOUR
T1 - The driving factors of firm investment
T2 - Latin American evidence
AU - Fernandez, Viviana
N1 - Funding Information:
Viviana Fernandez ([email protected]) is a full professor in the Business School at Uni-versidad Adolfo Ibáñez, Santiago, Chile. Financial support from FONDECYT Grant no. 1070762 is gratefully acknowledged. All remaining errors are the author’s.
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
UR - https://www.scopus.com/pages/publications/84555218927
U2 - 10.2753/REE1540-496X470501
DO - 10.2753/REE1540-496X470501
M3 - Article
AN - SCOPUS:84555218927
SN - 1540-496X
VL - 47
SP - 4
EP - 26
JO - Emerging Markets Finance and Trade
JF - Emerging Markets Finance and Trade
IS - 5
ER -