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.