Financial leverage, debt maturity, future financing constraints and future investment

Purpose This paper aims to investigate the impact of debt maturity on the relationship between financial leverage and future financing constraints. Moreover, it attempts to analyze the moderating role of short-term debt and the mediating role of future financing constraints in the relationship between financial leverage and future investment. Design/methodology/approach To test the moderating role of debt maturity, all the observations are divided into two groups based on short-term debt to total debt ratio. Moreover, Sobel, Aroian and Goodman tests are used to analyze the mediating role of future financing constraints. The sample used in this research includes firms listed on the Tehran Stock Exchange from 2006 to 2018. Findings It is shown that financial leverage is inversely (positively) related to future financing constraints for firms with higher (lower) use of short-term debt and, short-term debt moderates the relation between financial leverage and future investment. The findings also indicate that future financing constraints carry the influence of financial leverage to future investment. Originality/value In an imperfect market where financing is not independent of investment, it is highly required to carry out some studies on the role of different financing scenarios in firms and their impacts on future financing and investment; therefore, this paper is conducted to address one of the most important issues in the capital market, which is almost the pioneer study in this field.