Nonlinear Effects of Debt on Investment: Evidence from Dutch Listed Firms |
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| Authors: | Hong Bo |
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| Institution: | 1. Department of Financial and Management Studies, SOAS , University of London , London, UK hb22@soas.ac.uk |
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| Abstract: | 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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| Keywords: | Investment–debt relation debt borrowing constraint agency costs debt capital gain in the presence of inflation |
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