©The Pakistan Development Review 48 : 4 Part II (Winter 2009) pp. 565–578 Empirical Investigation of Debt-Maturity Structure: Evidence from Pakistan ATTAULLAH SHAH and SHAHID ALI KHAN * 1. INTRODUCTION Capital structure theories suggest many ways in which firms can adjust overtime to the target debt ratio in order to optimise the cost of capital and maximise the wealth of shareholders. In doing so, a firm can use different mixes of equity, debt, and hybrid securities. These areas of capital structure have already been extensively researched— both theoretically and empirically [e.g., Hatfield, et al. (1994); Haris and Raviv (1991); Lewis and Sappington (1995); Miao (2005)]. Recent developments in corporate finance research show that the optimal capital structure decision is not limited only to choosing what percentage of debt or equity should be used, but the decision also has to involve the choice of short-term or long-term debt [Leland and Toft (1996); Myers (1977); Yi (2005)]. In developed markets, firms can easily choose between short or long-term debts as per their requirements of optimal debt maturity structure. They are not constrained by the availability of either type of debt as the banking industry and capital markets are both developed and competitive. Unfortunately, firms operating in developing countries are not that lucky. Because of less developed capital markets and instable interest rates, firms in developing countries usually find it difficult to use long-term debt. Besides these obvious reasons, we need to know empirically what factors influence the debt maturity choice in developing countries like Pakistan. As far as we know, there is no formal study to empirically examine the determinants of debt-maturity structure of Pakistani firms. In a study on determinants of capital structure of Pakistani listed firms, Shah and Hijazi (2004) report greater percentage of short-term debt in the total debt of the listed firms. Similarly, Booth, et al. (2001) and Demiriguc-Kunt and Maksimovic (1999) document higher percentage of short-term debt in developing countries. How higher is the percentage of the short-term debt in Pakistani listed firms and what are the determinants of debt maturity structure in Pakistan? This study aims to answer these questions. This study contributes to the empirical literature by presenting evidence for the first time on how listed firms in Pakistan make their choices between long-term and short-term debt. The empirical literature is rich on capital structure decisions but not on Attaullah Shah <attaullah.shah@imsciences.edu.pk> is Assistant Professor, Institute of Management Sciences, Peshawar. Shahid Ali Khan, Faculty Member, Institute of Management Sciences, Peshawar.