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More Frequent Than You Think: Revisiting Capital Structure Adjustment

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Listed:
  • Zhiguo He
  • Peter M. DeMarzo
  • Qiping Xu

Abstract

This paper revisits the empirical evidence on capital structure adjustment and the prevalence of financing “inaction.” We show that the conclusion of infrequent leverage adjustment is sensitive to two methodological choices: high adjustment thresholds and reliance on net balance-sheet changes. Using lower thresholds and gross flows from cash-flow statements, we find adjustment is far more frequent than previously documented, and the pattern reveals pronounced size-based heterogeneity. Smaller firms exhibit considerable inertia consistent with fixed costs; the largest firms (e.g., top 1% by assets) behave as if frictions are negligible. Frictionless recapitalization models thus better describe large-firm leverage dynamics.

Suggested Citation

  • Zhiguo He & Peter M. DeMarzo & Qiping Xu, 2026. "More Frequent Than You Think: Revisiting Capital Structure Adjustment," NBER Working Papers 35593, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:35593
    Note: AP CF
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    More about this item

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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