Leverage, Investment, and Firm Growth

Lang, Larry H.P.; Ofek, Eli; Stulz, René M.

doi:10.3386/w5165

Cited by 370 publications

(497 citation statements)

References 12 publications

Supporting

Mentioning

420

Contrasting

Unclassified

Order By: Relevance

“…The results of the paper indicate that leverage has a significantly negative impact on investment for Canadian firms and that it has a stronger negative impact on firms with low growth opportunities. Our results are similar to earlier ones for the US, such as those of Lang et al (1996). This paper utilizes the instrumental variable approach to address the endogeneity problem pertaining to the relationship between leverage and investment.…”

Section: Introductionsupporting

confidence: 87%

“…They show that corporate value is negatively correlated with leverage for firms with strong growth opportunities (indicated by high Tobin's Q), and positively correlated with leverage for firms with weak growth opportunities (or low Tobin's Q). Their results are consistent with the hypothesis that 2 See Lang et al (1996). 3 Alternatively, if transaction costs of bargaining are small, recontracting between debt holders and equity holders internalizes potential externalities generated by leverage, in effect overcoming the underinvestment problem.…”

Section: The Link Between Leverage and Investmentsupporting

confidence: 61%

“…Previous studies of the relationship between leverage and growth, such as McConnell and Servaes (1995) and Lang et al (1996), use pooling regressions and in effect ignore individual firm effects. Such an approach may not fully identify the impact of leverage on growth if the relationship is also governed by unobservable individual firm characteristics.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

The impact of leverage on firm investment: Canadian evidence

Aivazian

Qiu

2005

Journal of Corporate Finance

471

407

View full text Add to dashboard Cite

This study examines the impact of financial leverage on the firms' investment decisions using information on Canadian publicly traded companies. It shows that leverage is negatively related to investment and that this negative effect is significantly stronger for firms with low growth opportunities than those with high growth opportunities. The paper tests the robustness of these results using alternative empirical models and, in addition, uses the instrumental variable approach to deal with the endogeneity problem inherent in the relationship between leverage and investment. The results provide support to agency theories of corporate leverage, and especially the theory that leverage has a disciplining role for firms with low growth opportunities. D 2005 Elsevier B.V. All rights reserved.JEL classification: G32

show abstract

Section: Introductionsupporting

confidence: 87%

Section: The Link Between Leverage and Investmentsupporting

confidence: 61%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

The impact of leverage on firm investment: Canadian evidence

Aivazian

Qiu

2005

Journal of Corporate Finance

471

407

View full text Add to dashboard Cite

show abstract

“…These studies have analysed firm-level data and found relationships between employment and variables such as size (Broersma & Gautier, 1997;Hall, 1987;Oliveira & Fortunato, 2006;Singh & Whittington, 1975), age (Audretsch, 1995;Broersma & Gautier, 1997;Jovanovic, 1982;Oliveira & Fortunato, 2006), leverage (Carpenter & Petersen, 2002;Fazzari, Hubbard, &Petersen, 1988, Heisz andLaRochelle-Côté, 2004;Lang, Ofek, & Stulz 1996;Yazdanfar, 2011), liquidity (Acemoglu, 2001;Funke, Maurer, Siddiqui, & Strulik, 1998;Winker, 1999). Since firm size and age have an influence on information asymmetry, they are relevant when studying liquidity constraints (Myers, 1984;Myers & Majluf, 1984).…”

Section: The Independent Variablesmentioning

confidence: 99%

“…As mentioned above, unlike much previous research, this study is based on the resource-based approach, implying that the independent firm-level variables, size, age, leverage and liquidity, positively influence job creation (Audretsch, 1995;Autio, 2005;Hall, 1987;Lang, Ofek, & Stulz 1996).…”

Section: Hypothesesmentioning

confidence: 99%

Assessing Determinants on Job Creation at the Firm Level: Swedish Micro Firm Data

Yazdanfar¹,

Salman²

2012

IJEF

View full text Add to dashboard Cite

This study analyses job-creation determinants at the firm level for a panel of Swedish micro firms across four industry sectors, using the GMM (Generalized Method of Moments) system to analyse a database consisting of 12532 Swedish micro firms during 2007. It was found that the firms' size and age, the importance of debt financing and increased availability of liquidity are positively related to job creation as well as industry affiliation. Finally, the results suggest that a resource-based approach is at work in explaining job creation in micro firms. Unlike the majority of previous studies, this study is characterized by being based on a large and cross-sectoral firm-level dataset, testing a number of hypotheses driven from the resource-based approach. The present study contributes to the literature on the determinants of employment at the firm level as it investigates the importance of liquidity and financial leverage to firm labour demand dynamics in Sweden.

show abstract

Acquiring startups in the energy sector: a study of firm value and environmental policy

2018

View full text Add to dashboard Cite

Mergers and acquisitions are important activities for the growth of firms. In the energy sector, acquiring firms can obtain eco‐friendly technology and premiums, as well as tangible assets, through the acquisition of energy firms. Among many energy firms, an acquired startup is more effective since the acquisition price is relatively inexpensive and the acquiring firm is also exposed to entrepreneurial culture. In this study, to test the acquisition effect, datasets from Worldscope and CrunchBase are used. It is observed that, despite the advantages of an acquisition, the effect of a startup acquisition is negative. However, firms in environmentally sensitive industries benefit from such acquisition activity. The acquisition price of energy startups is overestimated due to increasing demand for acquisitions. On the other hand, the eco‐premiums also help dirty firms make a profit.

show abstract

Leverage, Investment, and Firm Growth

Cited by 370 publications

References 12 publications

The impact of leverage on firm investment: Canadian evidence

The impact of leverage on firm investment: Canadian evidence

Assessing Determinants on Job Creation at the Firm Level: Swedish Micro Firm Data

Acquiring startups in the energy sector: a study of firm value and environmental policy

Contact Info

Product

Resources

About