Debt Maturity Structure and Corporate Investment

Claire Yurong Hong, Kewei Hou and Thien Tung Nguyen
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Claire Yurong Hong: SAIF, Shanghai Jiao Tong U
Kewei Hou: Ohio State U
Thien Tung Nguyen: Ohio State U

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

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.

JEL-codes: E22 G11 G32 G33 (search for similar items in EconPapers)
Date: 2023-02
New Economics Papers: this item is included in nep-cfn and nep-fdg
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2023-03

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