Debt Maturity, Underinvestment Problem and Corporate Value

Abstract

This study examine show Malaysian public listed firms with low and high corporate value use debt maturity as a tool to mitigate under investment 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 under investment 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 recognizing the firms by the corporate value in relation to the under investment problem. The findings also provide additional justification to the literature in explaining the negative relationship between agency costs of debt and debt maturity structure using a sample of firms from a developing market.