Investment opportunities and leverage: some Australian evidence on the role of board monitoring and director equity ownership

Refers to previous research on investment opportunity sets, financing policies, board monitoring and directors’ shareholdings and the proportion of non‐executive directors (NEDs) on the board on the negative relationship between investment opportunities and leverage. Tests them on 1998 data from 437 top Australian companies, explains the methodology and presents the results, which suggest that the negative relationship (i.e. asset substitution or underinvestment) decreases with higher levels of executive director shareholdings or higher proportions of NEDs; and that underinvestment is greatest for firms with low management share ownership. Recognizes the limitations of the study and suggests some avenues for further research.