Leverage, Debt Maturity and Firm Investment: An Empirical Analysis
Year: 2010
Type: article
Abstract: : 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.
Author: Viet A. Dang
Institution: University of Manchester
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1963080271