NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Leverage, Investment, and Firm Growth

Larry Lang, Eli Ofek, Rene M. Stulz

NBER Working Paper No. 5165
Issued in July 1995
NBER Program(s):   AP   CF

We show that there is a negative relation between leverage and future growth at the firm level and, for diversified firms, at the segment level. Further, this negative relation between leverage and growth holds for firms with low Tobin's q, but not for high-q firms or firms in high-q industries. Therefore, leverage does not reduce growth for firms known to have good investment opportunities, but is negatively related to growth for firms whose growth opportunities are either not recognized by the capital markets or are not sufficiently valuable to overcome the effects of their debt overhang.

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Document Object Identifier (DOI): 10.3386/w5165

Published: Journal of Financial Economics, Vol. 40, 1996, p. 3-30. citation courtesy of

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