The Influence of Financial Leverage on Firm Value Through Investment Decisions: Empirical Evidence from Oman's Food Sector
The Influence of Financial Leverage on Firm Value Through Investment Decisions: Empirical Evidence from Oman's Food Sector

Summary/Abstract: This paper explores the multidimensional relationship between financial leverage, investment decisions and firm value in the case of publicly listed food companies in Oman. While acknowledging firm value as a fundamental measure of organizational success and sustainability, the study emphasizes on the management of financial leverage as a critical strategic driver. Although the direct impacts of financial leverage on firm value are well examined in the extant literature, this paper fills a vital gap by considering investment decisions as a mediating mechanism. These capital decisions, such as raising funds, acquiring assets, and expansion planning are important, especially when a firm is highly leveraged, for incorrect allocation of funds can amplify the financial risk associated with that investment. The study employs quantitative design for eleven listed food sector companies at the Muscat Stock Exchange for the period of five consecutive years (2020–2024) through panel data. Tobin’s Q, debt ratio and capital investment ratio are proxies for firm value, leverage, and investment behaviour. The research is underpinned on the theory of Modigliani and Miller with a partial adjustment mechanism to determine the way financial leverage affects firm value directly, the effect of investment decisions on value creation and how investment decisions serve as a link between financial leverage and the firm’s value. Food industry is a strategic context for market drivers since it plays a key role in Vision 2040 of Oman related to food security and economic diversification. Results are also anticipated to have important implications for theory and practice in the field of finance and to inform corporate management, investors, and policy makers in emerging-markets.

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