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Debt Maturity Structure and Corporate Investment

Author

Listed:
  • Hong, Claire Yurong

    (SAIF, Shanghai Jiao Tong U)

  • Hou, Kewei

    (Ohio State U)

  • Nguyen, Thien Tung

    (Ohio State U)

Abstract

We show that firms' debt maturity structure plays an important role in investment above and beyond that of leverage. Firms with a longer debt maturity structure tend to invest more. These results are stronger for firms with high leverage, 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.

Suggested Citation

  • Hong, Claire Yurong & Hou, Kewei & Nguyen, Thien Tung, 2023. "Debt Maturity Structure and Corporate Investment," Working Paper Series 2023-03, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2023-03
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    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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