Investment Patterns and Financial Leverage

44 Pages Posted: 8 Jun 2004 Last revised: 20 Aug 2021

See all articles by Michael S. Long

Michael S. Long

Rutgers University at Newark

Ileen B. Malitz

I.B. Malitz & Associates

Date Written: June 1983


This study Investigates the influence of the type of investment opportunities facing a firm on its choice of capital structure. It is shown that the more discretionary investment opportunities a firm faces,the lower its financial leverage. Inclusion of other possible determinants of capital structure, such as availability of internal funds, tax effects and risk, while significant, do not affect the importance of discretionary investment. The evidence supports (1) the existence of a moral bazzard problem which inversely relates risky debt and discretionary investment choice, and (2) a desire by most firms to use sources of internal funds prior to entering the capital market.

Suggested Citation

Long, Michael S. and Malitz, Ileen B., Investment Patterns and Financial Leverage (June 1983). NBER Working Paper No. w1145, Available at SSRN:

Michael S. Long (Contact Author)

Rutgers University at Newark ( email )

111 Washington Avenue
Newark, NJ 07102
United States
973-353-5471 (Phone)

Ileen B. Malitz

I.B. Malitz & Associates

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