Lee, Karren -Hwei Khaw and Lee, Benjie Chien Jiang
(2016)
Debt Maturity, Underinvestment Problem And
Corporate Value.
Asian Academy of Management Journal of Accounting and Finance, 12 (1).
pp. 1-17.
ISSN 1823-4992
Abstract
This study examines how Malaysian public listed firms with low and high corporate
values use debt maturity as a tool to mitigate underinvestment problem. This study
employs panel data methodology instead of the commonly used pooling regression.
Results show that firms with low Tobin's Q ratio, a proxy for corporate value, maintain
lower level of long-term debt to mitigate agency costs of debt caused by underinvestment
problem, whereas firms with high Tobin's Q ratio are indifferent with the debt maturity
decision. This study extends the literature on the determinants of debt maturity structure
by highlighting the importance of recognising the firms by the corporate values in
relation to the underinvestment problem. The findings also provide additional
justification for the existing literature in explaining the negative relationship between
agency costs of debt and debt maturity structure using a sample of firms from a
developing market
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