Debt Maturity Structure and Corporate Investment

Fisher College of Business Working Paper No. 2023-03-03

Charles A. Dice Center Working Paper No. 2023-03

43 Pages Posted: 2 Feb 2023 Last revised: 7 Apr 2024

See all articles by Claire Yurong Hong

Claire Yurong Hong

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF)

Kewei Hou

Ohio State University (OSU) - Department of Finance

Thien Tung Nguyen

Federal Reserve Board of Governors

Date Written: April 4, 2024

Abstract

We show that firms’ debt maturity structure has an important impact on investment above and beyond that of leverage. Firms with a longer debt maturity structure tend to invest more. This result is stronger for firms with higher profitability and growth potential. We rationalize our results in a model in which debt maturity structure is determined by the trade-off between liquidity cost and the repayment flexibility of long-term debt. In our model, highly productive firms invest more and prefer to use long-term debt to free up funds for future investment. This mechanism is supported by the data. Our findings highlight the importance of debt maturity structure in understanding corporate investment decisions.

Keywords: Investment, Debt Maturity, Capital Structure

JEL Classification: E22, G11, G32, G33

Suggested Citation

Hong, Claire Yurong and Hou, Kewei and Nguyen, Thien Tung, Debt Maturity Structure and Corporate Investment (April 4, 2024). Fisher College of Business Working Paper No. 2023-03-03, Charles A. Dice Center Working Paper No. 2023-03, Available at SSRN: https://ssrn.com/abstract=4346060 or http://dx.doi.org/10.2139/ssrn.4346060

Claire Yurong Hong

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

211 West Huaihai Road
Shanghai, China
Shanghai, Shanghai 200030
China

HOME PAGE: http://https://sites.google.com/site/claireyuronghong/

Kewei Hou

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-0552 (Phone)
614-292-2418 (Fax)

Thien Tung Nguyen (Contact Author)

Federal Reserve Board of Governors ( email )

Washington, D.C., DC

HOME PAGE: http://sites.google.com/site/thientungnguyen

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