The Impact of Leverage on Firm Investments in Tehran Stock Exchange (TSE)

There are different theories that challenged the relation between leverage and investment decision. Also a large empirical literature tests this position. We investigate the impact of financial leverage on the firm's investment decisions in Tehran Stock Exchange (TSE). Using alternative measures of leverage and alternative empirical models, this paper shows that leverage is negatively related to investment. Then, we test which empirical methodology used is most suitable. Furthermore, we show that negative effect of leverage in investment is significantly stronger for firms with low growth opportunities than those with high growth opportunities. As a further test of the robustness of the estimates, we control for industry effects: we use the industry median to adjust the variables in models. The results of industry-adjusted variable approach are similar to the previous ones.