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Macroeconomic conditions and capital structure adjustment speed

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  • Cook, Douglas O.
  • Tang, Tian
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    Abstract

    Using two dynamic partial adjustment capital structure models to estimate the impact of several macroeconomic factors on the speed of capital structure adjustment toward target leverage, we find evidence that firms adjust their leverage toward target faster in good macroeconomic states relative to bad states. This evidence holds whether or not firms are subject to financial constraints. Our results are robust to an alternative method of calculating states and to omitting zero-debt boundary firms and are not driven by firm size, deviation from target, or leverage definitions.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Corporate Finance.

    Volume (Year): 16 (2010)
    Issue (Month): 1 (February)
    Pages: 73-87

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    Handle: RePEc:eee:corfin:v:16:y:2010:i:1:p:73-87

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    Web page: http://www.elsevier.com/locate/jcorpfin

    Related research

    Keywords: Dynamic capital structure Speed of adjustment Macroeconomic conditions;

    References

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    Cited by:
    1. Paula Antão & Diana Bonfim, 2012. "The dynamics of capital structure decisions," Working Papers w201206, Banco de Portugal, Economics and Research Department.
    2. Drobetz, Wolfgang & Gounopoulos, Dimitrios & Merikas, Andreas & Schröder, Henning, 2013. "Capital structure decisions of globally-listed shipping companies," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 52(C), pages 49-76.
    3. Mustafa Caglayan & Abdul Rashid, 2013. "The Response of Firms' Leverage to Risk: Evidence from UK Public versus Non-Public ManufacturingFirms," CFI Discussion Papers 1302, Centre for Finance and Investment, Heriot Watt University.
    4. Lin, Winston T. & Kao, Ta-Wei (Daniel), 2014. "The partial adjustment valuation approach with dynamic and variable speeds of adjustment to evaluating and measuring the business value of information technology," European Journal of Operational Research, Elsevier, vol. 238(1), pages 208-220.
    5. Dang, Viet Anh, 2013. "An empirical analysis of zero-leverage firms: New evidence from the UK," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 189-202.

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