The Role of Growth Opportunities in Moderating the Relationship Between Financial Leverage and Investment Decisions

Abstract

This study examines the relation between financial leverage and investment decisions and role of growth opportunities in this field. 97 firms listed in Tehran Stock Exchange during the 10 year period from 2002 to 2011 were reviewed. Two measures of financial leverage have been used: debt to asset ratio and long term debt to asset ratio. The relation between the first financial leverage ratio (debt to assets) and investment was negative and significant and the relation between the second financial leverage ratio (long term debt to assets ratio) and investment were positive and significant. The results show a stronger negative relationship between the first financial leverage ratio and investment in firms with fewer growth opportunities than firms with more growth opportunities.

Keywords

• Investment Decisions
• Financial Leverage
• Growth Opportunities
• panel data analysis