Investment Opportunities and Corporate Debt Policy : New Economy Firms Versus Old Economy Firms

This paper examines the impact of the New Economy on the relationship between corporate debt policy and firm investment opportunities. One distinctive feature of new economy firms is their high level of investment opportunities. We study whether the impact of investment opportunities on corporate debt policy is different in new economy firms, compared to traditional ones. Our empirical analysis covers U.S. industrial companies listed on NYSE, AMEX and NASDAQ in the period of 1950-2008. We find that firms with high investment opportunities have significantly less debt ratios than firms with low investment opportunities. Nevertheless, this link is weaker in new economy industry. The results complement other studies that have found significant relationship between investment opportunities and corporate debt policy by confirming the prominent role played by the New Economy in determining this association