Corporate Leverage and Investment

Chelluri, Karna; Marsh, W. Blake; Rodziewicz, David

doi:10.18651/ER/v105n1MarshRodziewicz

Journal Article

Corporate Leverage and Investment

Abstract: In this article, we examine the relationship between high corporate leverage and future firm investment spending on structures, machinery, and equipment. In other words, we examine how debt influences the growth of a firm’s capital stock or fixed assets. We find that, on average, more leveraged firms across industries tend to have lower levels of investment activity in the future. Specifically, we find that the negative relationship between debt and investment is strongest for the most highly indebted firms and is evident in both economic downturns and expansions.

Keywords: Firms; Corporate Leverage; Investments;

JEL Classification: G32; L10;

https://doi.org/10.18651/ER/v105n1MarshRodziewicz