Leverage, Growth Opportunities and Firm Investment: The Case of Manufacturing Firms in China

This paper examined the impact of financial leverage on investment decisions offirms using the panel data of publicly traded Chinese firms. We collected data for511 manufacturing companies during the period from 2005 to 2013 to do theresearch. The data shows that financial leverage is negatively correlated with afirm’s investment. Moreover, after we categorized the data into two types: 1)high-growth firms and 2) low-growth firms, it demonstrated that such negativecorrelation is significant for low-growth firms while insignificant for high-growthfirms. Additionally, long-term debt has a more significant negative correlation toinvestment than short-term debt.