We study the interaction between financial flexibility and investment ability. Our argument, based on the ideas of Modigliani and Miller (1963) and Myers (1984), maintains that, in presence of financial constraints, firms that anticipate valuable growth options in the future respond by accumulating reserves of borrowing power. Through a conservative leverage policy over a number of years, companies gain a degree of financial flexibility which can enhance their investment ability. Our analysis reveals that, following a period of low leverage (LL), firms are able to make more capital expenditures and increase abnormal investment. Most notably, we identify a sharp increase in abnormal investments. We show that the impact of the flexibility factor is not only statistically significant, but also sizeable in economic terms. An average firm is able to increase its investment by more than 50 percent by following this strategy. This is an important result, which provides a rationale for many firms' conservative leverage behavior (Graham, 2000; Minton and Wruck, 2001; Almeida et al., 2006). Further, firms classified as financially flexible appear to be less exposed to financial constraints, as indicated by the lower estimated coefficient of cash flow in the investment equation. Our intertemporal investigation of firm behaviour shows that the new investments are financed through new issues of debt, which take companies closer to their predicted target leverage. We perform numerous robustness checks in several directions. The results are robust to: 1) several different specifications of the leverage model; 2) the use of different time periods; 3) a classification method for LL firms that does not entail the estimation of any leverage model; and 4) different specifications for the investment model. Finally, we test our results against several alternative hypotheses that may confute our original argument. However, we fail to find any evidence that the low-leverage strategy is driven by lack of growth options, financial constraints, or managerial entrenchment.