The link between financial leverage and investment decisions in Vietnam’s small and medium-sized enterprises

ABSTRACT

This study analyzes the correlation between financial leverage and investment decisions and the choice of financing sources in small and medium-sized enterprises (SMEs) in Vietnam. In contrast to financial theories and previous studies, our results reveal a positive relationship between financial leverage and investment decision, suggesting that SMEs with higher financial leverage tend to seek more investment opportunities than SMEs with lower financial leverage. We also find that firms with higher financial leverage are more likely to choose external financing sources than internal ones. Our results confirm that financial theories have varying levels of applicability in the context of an emerging market, such as Vietnam.

KEYWORDS:

• Smal and Medium Sized Enterprises analysis
• capital structure
• financial leverage
• investment decisions
• Vietnam

Disclosure statement

No potential conflict of interest was reported by the authors.