Leverage and Maturity as Strategic Complements

Posted: 22 Apr 1998

See all articles by Michael J. Barclay

Michael J. Barclay

University of Rochester - Simon School (Deceased)

Leslie M. Marx

Duke University - Fuqua School of Business, Economics Group

Clifford W. Smith

Simon Graduate School of Business, University of Rochester

Abstract

We examine choices of leverage and debt maturity, focusing on the impact of investment opportunity sets and regulatory environments. Using the mathematics of strategic complementarities, we derive conditions under which firms choose facets of capital structure that re monotonic in their investment opportunity sets and regulatory environments. Growth-options firms choose lower leverage and shorter debt maturities than assets-in-place firms; regulated firms choose higher leverage and longer debt maturities than regulated firms. We discuss implications for empirical work and provide tests using COMPUSTAT data for over 5,000 industrial firms between 1974 and 1995.

JEL Classification: C51, G32

Suggested Citation

Barclay, Michael J. and Marx, Leslie M. and Smith, Clifford W., Leverage and Maturity as Strategic Complements. Simon School/University of Rochester Working Paper FR 97-13. Available at SSRN: https://ssrn.com/abstract=78671

Michael J. Barclay (Contact Author)

University of Rochester - Simon School (Deceased)

N/A

Leslie M. Marx

Duke University - Fuqua School of Business, Economics Group ( email )

Box 90097
Durham, NC 27708-0097
United States

Clifford W. Smith

Simon Graduate School of Business, University of Rochester ( email )

Carol Simon Hall 3-202C
Rochester, NY 14627
United States
585-275-3217 (Phone)
585-442-6323 (Fax)

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