Debt Maturity Structure and Firm Investment

Authors


  • We are grateful for the comments and suggestions of an anonymous referee. We have also benefited from the comments of the Editors (Lemma Senbet, Jim Seward, and Alex Triantis). Financial support from the Social Sciences and Humanities Research Council of Canada is gratefully acknowledged. Any errors are our own.

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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