Debt Maturity Structure and Firm Investment

Varouj A. Aivazian · Jiaping Qiu

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Corporate Finance and Governance Financial Analysis and Corporate Governance Working Capital and Financial Performance

Abstract

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.

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References

1991Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations 1977Determinants of corporate borrowing 1988Financing Constraints and Corporate Investment 1987Financing Constraints and Corporate Investment 2002Market Timing and Capital Structure 2002Testing Trade-Off and Pecking Order Predictions About Dividends and Debt 1988Corporate Finance and Corporate Governance 1995The Maturity Structure of Corporate Debt

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