Debt Maturity Structure and Firm Investment

• Published in: Financial management Vol. 34; no. 4; pp. 107 - 119
• Main Authors: Aivazian, Varouj A., Ge, Ying, Qiu, Jiaping
• Format: Journal Article
• Language: English
• Published: Oxford, UK Blackwell Publishing Ltd 01-12-2005; Financial Management Association
• 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; United States
• ISSN: 0046-3892; 1755-053X
• DOI: 10.1111/j.1755-053X.2005.tb00120.x

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.