Debt Maturity and the Effects of Growth Opportunities and Liquidity Risk on Leverage Academic Article

abstract

• I test the hypothesis that short debt maturity attenuates the negative effect of growth opportunities on leverage. Using simultaneous equations with leverage and maturity endogenous, I find strong support for an economically significant attenuation effect. The negative effect of growth opportunities on leverage for firms with all shorter-term debt is less than one-sixth as large as the effect for firms with all longer-term debt. Short maturity also increases liquidity risk, however, which negatively affects leverage. The results suggest that firms trade off the cost of underinvestment problems against the cost of liquidity risk when choosing short maturity.

authors

• Johnson, Shane

published proceedings

• Review of Financial Studies

altmetric score

• 3

author list (cited authors)

• Johnson, S. A.

citation count

• 322

complete list of authors

• Johnson, Shane A

publication date

• January 2003

publisher

• Oxford University Press (OUP)  Publisher

published in

• The Review of Financial Studies  Journal

Digital Object Identifier (DOI)

• 10.1093/rfs/16.1.0209

start page

• 209

end page

• 236

volume

• 16

issue

• 1

URL

• http%3A%2F%2Fdx.doi.org%2F10.1093%2Frfs%2F16.1.0209