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Social trust and the speed of corporate leverage adjustment: evidence from around the globe

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  • Peng Huang
  • Yue Lu
  • Robert Faff

Abstract

We examine the relation between social trust and the speed of leverage adjustment (SOA) around the world. Using a large international sample (65 countries, 1996–2016), we find that social trust has a positive effect on SOA. In the cross section, we find that the positive effect of social trust on the SOA is more pronounced for: (i) over‐levered firms; (ii) firms with higher information asymmetry; (iii) firms with lower ease of financing; and (iv) firms located in countries with weaker governance quality. Overall, we highlight the role of social trust in shaping corporate capital structure.

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  • Peng Huang & Yue Lu & Robert Faff, 2021. "Social trust and the speed of corporate leverage adjustment: evidence from around the globe," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(2), pages 3261-3303, June.
    • Handle: RePEc:bla:acctfi:v:61:y:2021:i:2:p:3261-3303
    DOI: 10.1111/acfi.12701
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