Leverage, Debt Maturity and Firm Investment: An Empirical Analysis
Leverage | /dk/atira/pure/subjectarea/asjc/1400/1401 | Debt Maturity | /dk/atira/pure/subjectarea/asjc/1400/1402 | Dynamic Panel Data | capital structure; leverage; debt maturity; investment; dynamic panel data | Investment | Capital Structure | Business, Management and Accounting (miscellaneous) | Accounting | /dk/atira/pure/subjectarea/asjc/2000/2003 | Finance
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. © 2010 Blackwell Publishing Ltd.