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The impact of firm characteristics on speed of adjustment to target leverage: a UK study

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  • J. Fitzgerald
  • J. Ryan

Abstract

Responding to the need to investigate heterogeneity in the speed of adjustment (SOA) to target leverage in a manner that reflects the fractional nature of leverage, we estimate SOA across sub-samples of UK firms using the Dynamic Panel Fractional (DPF) estimator. Using firm characteristics to identify firms subject to varying costs of deviation from and adjustment to target leverage, we find significant evidence of heterogeneity in the speeds at which UK firms adjust to target leverage. Our results show that small, high growth and low dividend paying firms adjust to target leverage faster than their large, low growth and high dividend paying counterparts. We also find some evidence to suggest openly held firms adjust faster than closely held firms, though our results are not robust to the categorizing criterion employed or target leverage specification.

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  • J. Fitzgerald & J. Ryan, 2019. "The impact of firm characteristics on speed of adjustment to target leverage: a UK study," Applied Economics, Taylor & Francis Journals, vol. 51(3), pages 315-327, January.
    • Handle: RePEc:taf:applec:v:51:y:2019:i:3:p:315-327
    DOI: 10.1080/00036846.2018.1495822
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    Cited by:

    1. Zhang, Jianhua & Zhao, Zhao & Jian, Wenqing, 2020. "Do cash flow imbalances facilitate leverage adjustments of Chinese listed firms? Evidence from a dynamic panel threshold model," Economic Modelling, Elsevier, vol. 89(C), pages 201-214.
    2. Ayman Hassan Bazhair & Mohammed Naif Alshareef, 2022. "Dynamic relationship between ownership structure and financial performance: a Saudi experience," Cogent Business & Management, Taylor & Francis Journals, vol. 9(1), pages 2098636-209, December.
    3. Pankaj Sinha & Sandeep Vodwal, 2022. "Impact of size and earnings on speed of partial adjustment to target leverage: a study of Indian companies using two-step system GMM," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 13(2), pages 957-977, April.
    4. Morais, Flávio & Serrasqueiro, Zélia & Ramalho, Joaquim J.S., 2022. "Capital structure speed of adjustment heterogeneity across zero leverage and leveraged European firms," Research in International Business and Finance, Elsevier, vol. 62(C).
    5. Obaid Ur Rehman & Xiaoxing Liu & Kai Wu & Junfeng Li, 2023. "Customer concentration, leverage adjustments, and firm value," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(2), pages 2035-2079, June.
    6. Abdullahi Sani, 2020. "CEO Tenure and Financing Decisions of Nigerian Non-Financial Listed Firms: A Dynamic Panel Approach," Journal of Accounting, Business and Finance Research, Scientific Publishing Institute, vol. 10(2), pages 76-83.

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