IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v14y2015icp56-63.html

Some searches may not work properly. We apologize for the inconvenience.

   My bibliography  Save this article

On corporate capital structure adjustments

Author

Listed:
  • Dang, Viet Anh
  • Garrett, Ian

Abstract

Recent research has examined asymmetries in firms’ adjustments toward target leverage. Assuming firms mainly adjust their debt levels, Byoun (2008) finds that firms adjusting most quickly possess two important characteristics: above-target debt and a financing surplus. Using alternative models allowing for adjustments in both debt and total assets, we still find evidence of asymmetries in leverage adjustments, but that firms adjusting fastest have above-target leverage and a financing deficit. Our paper shows how alternative assumptions about leverage dynamics may lead to different conclusions about target adjustment behavior.

Suggested Citation

  • Dang, Viet Anh & Garrett, Ian, 2015. "On corporate capital structure adjustments," Finance Research Letters, Elsevier, vol. 14(C), pages 56-63.
    • Handle: RePEc:eee:finlet:v:14:y:2015:i:c:p:56-63
    DOI: 10.1016/j.frl.2015.05.016
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612315000604
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2015.05.016?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Leland, Hayne E, 1994. "Corporate Debt Value, Bond Covenants, and Optimal Capital Structure," Journal of Finance, American Finance Association, vol. 49(4), pages 1213-1252, September.
    2. Faulkender, Michael & Flannery, Mark J. & Hankins, Kristine Watson & Smith, Jason M., 2012. "Cash flows and leverage adjustments," Journal of Financial Economics, Elsevier, vol. 103(3), pages 632-646.
    3. Soku Byoun, 2008. "How and When Do Firms Adjust Their Capital Structures toward Targets?," Journal of Finance, American Finance Association, vol. 63(6), pages 3069-3096, December.
    4. Flannery, Mark J. & Rangan, Kasturi P., 2006. "Partial adjustment toward target capital structures," Journal of Financial Economics, Elsevier, vol. 79(3), pages 469-506, March.
    5. repec:bla:jfinan:v:44:y:1989:i:1:p:19-40 is not listed on IDEAS
    6. Xin Chang & Sudipto Dasgupta, 2009. "Target Behavior and Financing: How Conclusive Is the Evidence?," Journal of Finance, American Finance Association, vol. 64(4), pages 1767-1796, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Biswajit Ghose & Kailash Chandra Kabra, 2019. "Capital Structure Dynamics and Financing Imbalance: Evidence from an Emerging Economy," Emerging Economy Studies, International Management Institute, vol. 5(2), pages 103-124, November.
    2. Ripamonti, Alexandre, 2019. "Capital Structure Adjustments and Asymmetric Information," MPRA Paper 96936, University Library of Munich, Germany.
    3. Lin, Winston T. & Chen, Yueh H. & Hung, TingShu, 2019. "A partial adjustment valuation approach with stochastic and dynamic speeds of partial adjustment to measuring and evaluating the business value of information technology," European Journal of Operational Research, Elsevier, vol. 272(2), pages 766-779.
    4. Yildirim, Ramazan & Masih, Mansur & Bacha, Obiyathulla Ismath, 2018. "Determinants of capital structure: evidence from Shari'ah compliant and non-compliant firms," Pacific-Basin Finance Journal, Elsevier, vol. 51(C), pages 198-219.
    5. Ripamonti, Alexandre, 2020. "Financial institutions, asymmetric information and capital structure adjustments," The Quarterly Review of Economics and Finance, Elsevier, vol. 77(C), pages 75-83.
    6. Biswajit Ghose & Kailash Chandra Kabra, 2020. "Does Growth Affect Firms’ Leverage Adjustment Speed? A Study of Indian Firms," Business Perspectives and Research, , vol. 8(2), pages 139-155, July.
    7. Natalia Szomko, 2020. "Factors Associated with the Capital Structure of Polish Companies in the Long and Short Term," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 1, pages 55-74.
    8. Yarong Chen & Luca Sensini & Maria Vazquez, 2021. "Determinants of Leverage in Emerging Markets: Empirical Evidence," International Journal of Economics and Financial Issues, Econjournals, vol. 11(2), pages 40-46.
    9. Natalia Nehrebecka & Aneta Dzik-Walczak, 2018. "The dynamic model of partial adjustment of the capital structure: Meta-analysis and a case of Polish enterprises," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 36(1), pages 55-81.
    10. Biswajit Ghose & Kailash Chandra Kabra, 2019. "Firm Profitability and Adjustment of Capital Structure: Indian Evidence," Vision, , vol. 23(3), pages 297-308, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dang, Viet Anh & Kim, Minjoo & Shin, Yongcheol, 2014. "Asymmetric adjustment toward optimal capital structure: Evidence from a crisis," International Review of Financial Analysis, Elsevier, vol. 33(C), pages 226-242.
    2. Dang, Viet Anh & Kim, Minjoo & Shin, Yongcheol, 2012. "Asymmetric capital structure adjustments: New evidence from dynamic panel threshold models," Journal of Empirical Finance, Elsevier, vol. 19(4), pages 465-482.
    3. Bontempi, Maria Elena & Bottazzi, Laura & Golinelli, Roberto, 2020. "A multilevel index of heterogeneous short-term and long-term debt dynamics," Journal of Corporate Finance, Elsevier, vol. 64(C).
    4. Christopher F. Baum & Mustafa Caglayan & Abdul Rashid, 2017. "Capital structure adjustments: Do macroeconomic and business risks matter?," Empirical Economics, Springer, vol. 53(4), pages 1463-1502, December.
    5. Biswajit Ghose & Kailash Chandra Kabra, 2019. "Capital Structure Dynamics and Financing Imbalance: Evidence from an Emerging Economy," Emerging Economy Studies, International Management Institute, vol. 5(2), pages 103-124, November.
    6. M. E. Bontempi & L. Bottazzi & R. Golinelli, 2015. "Dynamic corporate capital structure behavior: empirical assessment in the light of heterogeneity and non stationarity," Working Papers wp988, Dipartimento Scienze Economiche, Universita' di Bologna.
    7. Wenfei Li & Cen Wu & Liping Xu & Qingquan Tang, 2017. "Bank connections and the speed of leverage adjustment: evidence from China's listed firms," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(5), pages 1349-1381, December.
    8. Daniel Tut, 2022. "Policy uncertainty and cash dynamics," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 45(2), pages 422-444, June.
    9. Frank, Murray Z. & Shen, Tao, 2019. "Corporate capital structure actions," Journal of Banking & Finance, Elsevier, vol. 106(C), pages 384-402.
    10. Jiang, Zhan & Lie, Erik, 2016. "Cash holding adjustments and managerial entrenchment," Journal of Corporate Finance, Elsevier, vol. 36(C), pages 190-205.
    11. Chauhan, Gaurav Singh & Huseynov, Fariz, 2018. "Corporate financing and target behavior: New tests and evidence," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 840-856.
    12. Natalia Nehrebecka & Aneta Dzik-Walczak, 2018. "The dynamic model of partial adjustment of the capital structure: Meta-analysis and a case of Polish enterprises," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 36(1), pages 55-81.
    13. Joye Khoo & Robert B. Durand & Subhrendu Rath, 2017. "Leverage adjustment after mergers and acquisitions," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57, pages 185-210, April.
    14. Giorgio Canarella & Stephen M. Miller, 2019. "Determinants of Optimal Capital Structure and Speed of Adjustment: Evidence from the U.S. ICT Sector," Working papers 2019-06, University of Connecticut, Department of Economics.
    15. Thao Nguyen & Min Bai & Greg Hou & Cameron Truong, 2021. "Speed of adjustment towards target leverage: evidence from a quantile regression analysis," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(4), pages 5073-5109, December.
    16. Kim, Tae-Nyun & Xie, Yutong, 2023. "Off-balance sheet disclosure and leverage adjustment speed," Finance Research Letters, Elsevier, vol. 51(C).
    17. Wei He & NyoNyo A Kyaw, 2023. "Macroeconomic risks and capital structure adjustment speed: The Chinese evidence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2885-2899, July.
    18. Yan Jiang & Yaping Xu & Shengsheng Li, 2022. "How Does Monetary Policy Uncertainty Influence Firms’ Dynamic Adjustment of Capital Structure," SAGE Open, , vol. 12(1), pages 21582440211, January.
    19. Im, Hyun Joong & Kang, Ya & Shon, Janghoon, 2020. "How does uncertainty influence target capital structure?," Journal of Corporate Finance, Elsevier, vol. 64(C).
    20. Natalia Szomko, 2020. "Factors Associated with the Capital Structure of Polish Companies in the Long and Short Term," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 1, pages 55-74.

    More about this item

    Keywords

    Capital structure; Dynamic trade-off theory; Partial adjustment model; Asymmetric adjustment; Model specification;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:14:y:2015:i:c:p:56-63. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.