Leverage, Debt Maturity and Firm Investment: An Empirical Analysis

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Dang, V.A. (2011)
  • Related identifiers: doi: 10.1111/j.1468-5957.2010.02215.x
  • Subject: 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.
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