Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/261853 
Year of Publication: 
2019
Citation: 
[Journal:] BRQ Business Research Quarterly [ISSN:] 2340-9436 [Volume:] 22 [Issue:] 2 [Publisher:] Elsevier España [Place:] Barcelona [Year:] 2019 [Pages:] 96-104
Publisher: 
Elsevier España, Barcelona
Abstract: 
The aim of this paper is to analyse the influence of financial system liquidity and corporate leverage on a firm's overinvestment. We posit that when external funds are easily available, as in expansionary monetary periods, debt loses its traditional role as a managerial control mechanism. Instead, the supply of systemic liquidity results in corporate leverage exacerbating the problem of overinvestment. Using a sample of over 12,400 companies from 25 OECD countries between 2003 and 2014, our results show a significant and positive relationship between corporate leverage and overinvestment when the liquidity of the financial system is high, confirming the shift in the role played by leverage. At the macroeconomic level, our research raises certain caveats concerning worldwide liquidity injections. At the microeconomic level, our study shows that the disciplinary role of debt might become a false friend when money abounds.
Subjects: 
Debt
Investment
Leverage
Liquidity
Overinvestment
JEL: 
G32
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Article

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