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,...
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ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
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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