Does the financial leverage have an impact on investment decisions in Jordanian industrial firms?

This paper primarily focuses on the impact of financial leverage on investment decisions of industrial Firms and it is an attempt to explore the impact of financial leverage on investment levels using industrial Firms-level panel data in JORDAN. We expect to contribute to the existing literature by bringing evidence from a panel data set, which comprises 19 industrial Firms, all listed on the Stock Exchange of JORDAN ,sampled over a 10 year-period (i.e. from 2000 to 2009). In Jordan corporate firms play a significant role in contributing to economic growth. In order to attain their objectives, firms need to efficiently manage their funds. To respond to global competition firms need to make massive capital investment in modern technologies, infrastructure, product development and product promotion and so on. Such investments may promote productivity and efficiency. There are several sources of financing those investments. Financial leverage is one of them. In its simplest form, financial leverage is the amount of debt used to finance a firm s assets and projects. It is good to note that during the great depression and throughout the 1930s and 1940s, financial leverage was predominantly viewed as a clear evil. It was perceived that huge amount of debt leads to financial distress. However, such a view point is no more universal. Nowadays, financial leverage is seen as important resource for the production of goods and services as well as for their distribution. Financial leverage is an important component in capital structure along with equity and retained earnings. One of the main debates in Corporate Finance is the impact of financial leverage on a firm s investment.