Title: Investment and leverage: the moderating effect of financial constraints

Authors: Quynh Trang Phan

Addresses: Faculty of Finance – Banking, Ho Chi Minh City Open University, 35-37 Ho Hao Hon, District 1, Ho Chi Minh City, Vietnam

Abstract: This study investigates how financial constraints affect the linkage between investment and leverage. Using the panel dataset of Vietnamese listed firms from 2007 to 2021, we found that the increase in firm investment is associated with the increase in debt use. It implies that an abundant supply of external debt will encourage firms to boost their investments. In addition, financial constraints weaken the relationship between financial leverage and firm investment. In other words, financial constraints hinder firms from increasing investment by reducing their debt levels and being more careful in selecting investment projects. The different techniques and proxies of financial constraints are employed to challenge these results.

Keywords: corporate investment; financial leverage; financial constraints; KZ index.

DOI: 10.1504/AAJFA.2025.147595

Afro-Asian Journal of Finance and Accounting, 2025 Vol.15 No.4, pp.407 - 424

Received: 24 Oct 2022
Accepted: 11 Oct 2023
Published online: 24 Jul 2025 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article