Title: Leverage and investment: a view of prominent role of state ownership

Authors: Thi Phuong Thao Hoang; Duc Nam Phung

Addresses: School of Finance, University of Economics Ho Chi Minh City, 196 Tran Quang Khai, District 1, Hochiminh City, Vietnam ' School of Finance, University of Economics Ho Chi Minh City, 196 Tran Quang Khai, District 1, Hochiminh City, Vietnam

Abstract: The study investigates the relationship between leverage and investment in the presence of state ownership in an emerging market. The paper finds that leverage is negatively correlated to corporate investment. This negative relationship is different among firms with different growth opportunities in which the negative relation is significantly larger for low growth companies than high growth ones. Furthermore, when the role of state ownership at both bank and firm levels is taken into account, we find that state ownership tends to attenuate the negative relationship between leverage and investment. The results imply a biased and less-constrained lending policy of a banking system wherein state-owned banks dominate. This bias, in turn, causes over-and-inefficient investments in state-owned firms.

Keywords: corporate governance; leverage; investment; state ownership; finance; emerging markets.

DOI: 10.1504/IJBAAF.2019.099430

International Journal of Banking, Accounting and Finance, 2019 Vol.10 No.2, pp.181 - 212

Accepted: 08 Dec 2017
Published online: 24 Apr 2019 *

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