How Do the Volume and Maturity of Debt Relate to Investment Efficiency? The Case of Asia

Abstract

This study aims to investigate the impact of debt volume and maturity on investment efficiency. It also analyzes the role of debt maturity in the association between debt volume and investment efficiency. The sample consists of 8,741 firm-year observations from 1,301 Asian corporations, covering the period 2007-2017. Financial leverage is employed as a proxy for debt volume as well as short-term debt for debt maturity. The findings reveal that debt volume and short-term debt are inversely related to investment efficiency. It also shows that the negative relationship between financial leverage and investment efficiency is weaker (closer to zero) for firms with higher use of short-term debt than those with lower use of short-term debt. This paper tries out agency and information asymmetry theories and provides practical implications regarding the optimal capital structure for firms headquartered in Asia.