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Nonlinear Effects of Debt on Investment: Evidence from Dutch Listed Firms

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  • Hong Bo

Abstract

Nonlinear effects of debt on investment are investigated using an unbalanced panel of 94 Dutch listed nonfinancial firms during the period 1985-2000. Evidence shows that the nonlinear relation between debt and investment can be represented by a U curve, which contradicts the financial constraints theory. One possible explanation of the U curve relation between debt and investment may be the debt capital gain in the presence of inflation.

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  • Hong Bo, 2007. "Nonlinear Effects of Debt on Investment: Evidence from Dutch Listed Firms," The European Journal of Finance, Taylor & Francis Journals, vol. 13(7), pages 669-687.
    • Handle: RePEc:taf:eurjfi:v:13:y:2007:i:7:p:669-687
    DOI: 10.1080/13518470701322300
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