Does Financing Decisions Influence Investment Decisions? Empirical Evidence from Sri Lanka

Mca Nazar Mca Nazar

doi:10.32996/jefas.2021.3.1.3

Abstract

This study investigates the impact of financing decision on investment decision of 198 non-financial companies listed on the Colombo Stock Exchange of Sri Lanka, eight years period from 2011 to 2018. This study employed the Generalized Method of Moments (GMM) model to estimate the regression models on panel data study. The major contribution of this study shows that the impact of financing on investment decisions of listed companies. The results of the study revealed that, the impact of total debt on changes in total asset and Tobin’s Q was insignificant negative and significant negative respectively. However, the impact of long term debt on changes in total asset and Tobin’s Q was significant negative and insignificant negative respectively. Therefore, the impact of financing decision is significantly negative on investment decision.

Highlights

1 The importance of corporate firms in generating a country’s higher productivity and better economic growth is undeniable in today’s globalization era
This study investigates the impact of financing decision on investment decision of 198 non-financial companies listed on the Colombo Stock Exchange of Sri Lanka, eight years period from 2011 to 2018
The major contribution of this study shows that the impact of financing on investment decisions of listed companies

Summary

Introduction

Corporate finance deals with selection of new investment and decision as regards the manner of financing those investments. Aivazian et al (2005) carried out a study to investigate the effect of leverage on investment on 1035 Canadian industrial companies for the period from 1982 to 1999 They show leverage is negatively associated with investment and such negative association is significantly higher for firms having low growth opportunities compared to their counterparts having high growth opportunities. They examine the results strength through the use of alternative empirical models (2SLS) along with the instrumental variables technique to tackle with the issue of endogeneity existing in the leverage –investment relationship.

Tangibility Profitability Firm size

Changes in total assets

Conclusion and limitations