Leverage and Maturity as Strategic Complements

We examine choices of leverage and debt maturity, focusing on the impact of investment opportunity sets and regulatory environments. Using the mathematics of strategic complementarities, we derive conditions under which firms choose facets of capital structure that re monotonic in their investment opportunity sets and regulatory environments. Growth-options firms choose lower leverage and shorter debt maturities than assets-in-place firms; regulated firms choose higher leverage and longer debt maturities than regulated firms. We discuss implications for empirical work and provide tests using COMPUSTAT data for over 5,000 industrial firms between 1974 and 1995