The Impact of Leverage on Firms Investment Decision in Tehran Stock Exchange (TSE)

The present paper is aimed at analyzing the impact of leverage on firm’s investment decision of Tehran Stock Exchange (TSE) listed companies during the period from 2005 to 2009. To measure the impact of leverage on firm’s investment decision, unbalanced panel regression, with regard to random and fixed effect models are used by taking control variable including Tobin’s Q, sales, operating cash flow, Return on Asset, current ratio (liquidity) and retained earnings. Tow criteria for leverage are considered: i) debt ratio (total debt on total asset) ii) long term debt ratio(total long term debt on total asset). In addition, we demarcate between three types of firms (i) Small firms, (ii) Medium firms and (iii) Large firms. The results reveal no significant relationship between leverage and investment in any types of firms.