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

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  • Thi Phuong Thao Hoang
  • Duc Nam Phung

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.

Suggested Citation

  • Thi Phuong Thao Hoang & Duc Nam Phung, 2019. "Leverage and investment: a view of prominent role of state ownership," International Journal of Banking, Accounting and Finance, Inderscience Enterprises Ltd, vol. 10(2), pages 181-212.
    • Handle: RePEc:ids:injbaf:v:10:y:2019:i:2:p:181-212
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    Cited by:

    1. Nicko Albart & Bonar Marulitua Sinaga & Perdana Wahyu Santosa & Trias Andati, 2020. "The Controlling role of Ownership on Financial Performance and Capital Structure in Indonesia," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 9(3), pages 15-27, July.
    2. Jizhe Yang & Tingfeng Jiang & Lu Dai, 2022. "State‐ownership and corporate cash holding: Evidence from China," Australian Economic Papers, Wiley Blackwell, vol. 61(2), pages 217-233, June.

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