Interdependency of Investment and Financing with Financial Constrains: Evidence from Emerging Market Economies

Aim: This study aims to investigate the sensitivity level of liquidity and leverage to investment decision between non-financially and financially constrained firms at low and high investment firm. Materials and Methods: The sample includes sharia firms listed in Indonesia Stock Exchange in the period of 2011 to 2015 and 96 firms are selected as sample with 480 observations for data collection. Results: The results reveal that liquidity and leverage have a positive influence to investment decision of all sampled firms, and also firms with low and high investment value. Liquidity is more sensitive to investment decision for financially constrained firms and for firms with low investment value. Leverage is more sensitive to investment decision for non-financially constrained firms with high investment value. Conclusion: This study concludes that there is a close interdependency between investment decision and financing decision.