Leverage, Debt Maturity and Firm Investment: An Empirical Analysis

34 Pages Posted: 16 Mar 2011

See all articles by Viet Anh Dang

Viet Anh Dang

Alliance Manchester Business School

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Abstract

In this paper, we examine the potential interactions of corporate financing and investment decisions in the presence of incentive problems. We develop a system-based approach to investigate the effects of growth opportunities on leverage and debt maturity as well as the effects of these financing decisions on firm investment. Using a panel of UK firms between 1996 and 2003, we find that high-growth firms control underinvestment incentives by reducing leverage but not by shortening debt maturity. There is a positive relation between leverage and debt maturity as predicted by the liquidity risk hypothesis. Leverage has a negative effect on firm investment levels, which is consistent with the overinvestment hypothesis regarding the disciplining role of leverage for firms with limited growth opportunities.

Keywords: capital structure, leverage, debt maturity, investment, dynamic panel data

Suggested Citation

Dang, Viet Anh, Leverage, Debt Maturity and Firm Investment: An Empirical Analysis. Journal of Business Finance & Accounting, Vol. 38, Nos. 1-2, pp. 225-258, 2011. Available at SSRN: https://ssrn.com/abstract=1786241 or http://dx.doi.org/10.1111/j.1468-5957.2010.02215.x

Viet Anh Dang (Contact Author)

Alliance Manchester Business School ( email )

AMBS Crawford House
Booth Street West
Manchester, Greater Manchester M15 6PB
United Kingdom
+44(0)16127 50438 (Phone)

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