Does Financial Leverage Induce Investment? Evidence From Listed Manufacturing Companies in Vietnam

Abstract: We conduct an empirical test to examine the relationship between financial leverage and investment, as well as the influence of growth on this association in Vietnamese listed manufacturing companies in the 2012-2018 period. Using fixed effect model for a panel data of 122 listed manufacturing firms in Hochiminh Stock Exchange, we find a negative relationship between long-term financial leverage and investment for high-growth firms, which is consistent with the debt-overhang and risk-avoiding hypotheses. The role of financial leverage in reducing overinvestment is not confirmed in low-growth firms, contrary to the argument of leverage as a financial discipline in investment decision.

Key words: financial leverage; investment; growth; manufacturing listed companies; Vietnam

         JEL code: G3