Do asymmetric information and leverage affect investment decisions?

Ahmad, Muhammad Munir; Hunjra, Ahmed Imran; Taşkın, Dilvin

doi:10.1016/j.qref.2021.05.001

Cited by 23 publications

(13 citation statements)

References 51 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…K. Ahmad, Zulfiqar, Shah, Bilal, and Ahmad (2013), in the case of Pakistan for the 2000-2008 period, also find negative relationship between the firm leverage and investments, but the growth opportunities of the firm have no significance. Another recent study about Pakistan confirmed that the presence of asymmetric information increases the adverse effect of leverage on the investment of firms (M. M. Ahmad, Hunjra, & Taskin, 2021). In Mauritius, Odit and Chittoo (2008) confirm the negative relationship between leverage and investment for firms with low growth opportunities, and reveal an insignificant relationship between the two variables for high growth firms.…”

Section: Subsequent Researchmentioning

confidence: 79%

Asymmetric Information and Agency Cost of Financial Leverage and Corporate Investments: Evidence from Emerging South-East European Countries

Naumoski¹,

Arsov²,

Cvetkoska³

2022

Sci. Ann. Econ. Bus.

View full text Add to dashboard Cite

In this paper, we investigated the impact of financial leverage on investment decisions on a sample of 811 firms from ten emerging South-Eastern European countries (Bosnia and Herzegovina, Bulgaria, Montenegro, Croatia, Greece, Romania, North Macedonia, Slovenia, Serbia and Turkey). We apply a panel regression model involving investment ratio as a dependent variable, leverage as independent variable, and control for several firm characteristics that closely determines the corporate investments. The results of the analysis show that leverage is negatively related to investment in the companies in SEE. But only long term debt has a stronger negative impact on investment for firms with low growth opportunities than for firms with high growth opportunities. These findings show supportive evidence of agency theories of corporate leverage, especially with the debt overhang theory, but did not give strong validation that leverage has a disciplining role for firms with low growth opportunities in SEE emerging markets. In addition to leverage, we found that corporate investments in the SEE countries decrease significantly with tangibility and the company size. Corporate investments in the SEE countries increase significantly with cash flow, sales, non-debt tax shield and profitability. Overall, the results slightly defer with those from the research on the case of developed markets.

show abstract

Section: Subsequent Researchmentioning

confidence: 79%

Asymmetric Information and Agency Cost of Financial Leverage and Corporate Investments: Evidence from Emerging South-East European Countries

Naumoski¹,

Arsov²,

Cvetkoska³

2022

Sci. Ann. Econ. Bus.

View full text Add to dashboard Cite

show abstract

“…Referring to monetary freedom, asymmetric information between borrowers and lenders is an obstacle that must be overcome. As the development of credit information systems can lead to a higher degree of transparency, the effectiveness of monetary policy can be significantly improved (Fosu et al., 2016; Sattari et al., 2017; Ahmad et al., 2021). The government established monetary policies to adjust the money supply and interest rate to stabilise the economy.…”

Section: Resultsmentioning

confidence: 99%

Corruption and corporate leverage in an emerging economy: The role of economic freedom

Doan

Truong

Nguyen

et al. 2022

Ann Public Coop Econ

View full text Add to dashboard Cite

This study investigated the effects of corruption and economic freedom on corporate leverage. We also evaluated how economic freedom shapes the effect of corruption on corporate leverage. Using a sample of Vietnamese firms covering a nine‐year period from 2010 to 2018, we find evidence that increased control of corruption has a significant positive impact on firm leverage, whereas the opposite is true for economic freedom. This effect is robust to alternative measures of control of corruption as well as advanced estimation methods, such as firm‐fixed effects and quantile regressions. Our results also reveal that the positive impact of corruption controls on corporate leverage is more pronounced for firms with high economic freedom. Econometrically, our findings indicate that firms with better control over corruption prefer debt financing, as demonstrated by their higher leverage ratio.

show abstract

“…Second, larger levels of debt reduce future cash on management's hands; consequently, leverage negatively impacts IDs at the firm level (Aivazian et al, 2005). Aoun and Hwang (2008), Ajide (2017) and Ahmad et al (2021) have all noted a negative leverage-investment relationship. Ahn et al (2006) indicated that this negative relationship is much stronger for noncore segments and in sectors with high growth opportunities.…”

Section: Leveragementioning

confidence: 99%

Financing constraints and corporate investment decision: evidence from an emerging economy

Abdeljawad,

Abu Alia,

Demaidi

2023

View full text Add to dashboard Cite

Purpose Existing theories on the determining factors of corporate investment decisions raise the importance of financial market imperfections in explaining investment behavior. Many factors have been proposed as drivers of investment, mainly in developed economies, while emerging countries have almost been neglected. The main purpose of this study is to examine the effect of financing constraints on the investment behavior of a small context, namely, Jordan, with an imperfect environment. Design/methodology/approach This study considers panel data regressions from the industrial companies traded at the Amman Stock Exchange with a total of 1,058 firm-year observations. Findings The results are able to demonstrate that business size, tangibility, market-to-book ratio, profitability, financial slack and leverage are major drivers of investment choices. The results support the importance of information asymmetry in explaining the investment behavior of firms. Nonetheless, the Q-theory is in place, as is firm agility. Practical implications Policies to reduce information asymmetry are immediately needed to help firms increase investments by providing them with access to training, technology and market information. They also should enhance the firms’ opportunities for growth. Moreover, they should make it easier for businesses to access financial slack, such as by improving access to credit and financial institutions. They also can work to improve the financial infrastructure to meet the financing needs of businesses. Finally, smaller businesses should be assisted by improving their ability to invest and grow. Originality/value To the best of the authors’ knowledge, this is one of the first studies, if any, to investigate this issue in a distinct environment. Despite the unique characteristics of Jordan, the findings are applicable to other countries that experience comparable political and economic circumstances because Jordan has traits common to many emerging nations.

show abstract

Do asymmetric information and leverage affect investment decisions?

Cited by 23 publications

References 51 publications

Asymmetric Information and Agency Cost of Financial Leverage and Corporate Investments: Evidence from Emerging South-East European Countries

Asymmetric Information and Agency Cost of Financial Leverage and Corporate Investments: Evidence from Emerging South-East European Countries

Corruption and corporate leverage in an emerging economy: The role of economic freedom

Financing constraints and corporate investment decision: evidence from an emerging economy

Contact Info

Product

Resources

About