This study presents an empirical investigation whether lumpy investmentbehaviors by firms affect their readjustment toward target leverage ratios. Using a data sample of Japanese listed firms from1978?2008, it is found that firm investment spikes have a larger effect on debt than equity issuances. The positive effect of investments on debt issue is greater for firms with below-target debt than for those with above-target debt. The results imply that firms with below-target debt might move toward the target whereas those withabove-target debt move away from it during large investments. It is also found that financially constrained firms, with above-target debt, are more responsive to investment spikes than their financially unconstrained counterparts.村田省三教授、バスー・ディパック教授定年退職記念号In Honour of Prof. Shozo Murata and Prof. Dipak R. Bas
