Debt and Investment: A Firm Level Evidence

Abstract

In this study, the panel smooth transition model will be used to analyze the nonlinear relationship between debt and investment. It can be inferred from the results that debt drives investment when the debt level is relatively low. However, a rise in debt reaching the “threshold” level diminishes the chances of an increase in investments. The results above indicate: the current economic downturn being experienced will not be resolved by further leverage.