Debt Maturity Structure and Firm Investment

This study shows that the maturity structure of a firm's debt has a significant impact on its investment decisions. We show, after controlling for the effect of the overall level of leverage, that a higher percentage of long-term debt in total debt significantly reduces investment for firms wit...

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Bibliographic Details
Published in:Financial management 2005-12, Vol.34 (4), p.107-119
Main Authors: Aivazian, Varouj A., Ge, Ying, Qiu, Jiaping
Format: Article
Language:English
Subjects:
Bias
Business structures
Capital structure
Corporate debt
Correlation analysis
Costs
Debt
Debt reduction
Financial instruments
Financial investments
Financial leverage
Financial management
Hypotheses
Influence
Investment advisers
Investment plans
Investment policy
Long term debt
Long term investments
Maturity
Maturity structure
Methods
Services
Short term debt
Stockholders
Studies
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Summary:This study shows that the maturity structure of a firm's debt has a significant impact on its investment decisions. We show, after controlling for the effect of the overall level of leverage, that a higher percentage of long-term debt in total debt significantly reduces investment for firms with high growth opportunities. In contrast, the correlation between debt maturity and investment is not significant for firms with low growth opportunities. The results are strong at the firm level and at the business segment level. These results hold even after controlling for the endogeneity problem inherent in the relationship between total leverage, the maturity composition of leverage, and investment.
ISSN:0046-3892
1755-053X
DOI:10.1111/j.1755-053X.2005.tb00120.x