Open AccessDoes Financial Leverage Influence Investment Decisions? The Case Of Mauritian Firms
Author(s) -
Mohun Prasadsing Odit,
Hemant B. Chittoo
Publication year - 2011
Publication title -
journal of business case studies
Language(s) - English
Resource type - Journals
eISSN - 2157-8826
pISSN - 1555-3353
DOI - 10.19030/jbcs.v4i9.4807
Subject(s) - leverage (statistics) , panel data , stock exchange , business , monetary economics , operating leverage , investment decisions , investment (military) , finance , stock (firearms) , economics , financial economics , econometrics , mechanical engineering , behavioral economics , machine learning , profitability index , politics , computer science , political science , law , engineering
This paper primarily focuses on the impact of financial leverage on investment decisions of firms and it is an attempt to explore the impact of financial leverage on investment levels using firm-level panel data in Mauritius. We expect to contribute to the existing literature by bringing evidence from a panel data set, which comprises 27firms, all listed on the Stock Exchange of Mauritius (SEM), sampled over a 15 year-period (i.e. from 1990 to 2004). In addition, we demarcate between two types of firms, namely: (i) high-growth firms; and (ii) low-growth firms. The results reveal a significant negative relationship between leverage and investment. More interestingly, while we found a negative relationship between leverage and investment for low growth firm, our econometric results reveal an insignificant relationship between the two variables for high growth firm.