Abstract
The financial stability of a company, along with its operational effectiveness, depend on whether the company endeavours to optimise its capital structure, and the speed at which it can do so. The purpose of this article is to assess the relative impact of influential factors on the speed of adjustment to the optimal capital structure of companies in emerging markets. The relevant factors in question include corporate determinants, macroeconomic determinants, the specific financial characteristics of BRICS companies, and other pertinent external macroeconomic conditions.
 To achieve this, we conducted a comparative study of various assessment methodologies and examined their findings. Within the scope of the overall study aims, we considered various models of assessing the speed of adjustment and identified those study methods most frequently used. We identified the determinants of optimal capital structure and the related speeds of adjustment, and suggested hypotheses based on assumed assessment results. We then proceeded to analyse the sustainability of those results and gauge the overall robustness of our approach.
 The study results reveal that the speed of adjustment to target capital structure in developing economies is significantly higher than in advanced economies. The results indicate that these speeds vary in the range of 31–46% for book values of financial leverage and 60–79% for its market values. An empirical analysis of these results also showed that companies with a less-than-optimal debt level achieved the optimum level much quicker, and the speed of adjustment thereby depends heavily on the absolute value of the company money flow. Moreover, this is especially true in those companies with an excessive leverage value. Financial instability in the markets, meanwhile, had a positive effect upon the speed of adjustment for Chinese and Brazilian companies, while in the other BRICS countries the change of the speed of adjustment in the period of crisis finds no confirmation.
Highlights
Over a number of years, the subject of the capital structure of a company has been one of the most pressing and studied topics of financial economics
The study results reveal that the speed of adjustment to target capital structure in developing economies is significantly higher than in advanced economies
In this relation application of the least square method to evaluate the speed of adjustment to the optimal capital structure prevents us from obtaining reliable results, this research is based on use of more advanced evaluation methods, in particular generalised method of moments (GMM) and DPF
Summary
Over a number of years, the subject of the capital structure of a company has been one of the most pressing and studied topics of financial economics. Commencing from the paper [1] (the main conclusion of which consists in the irrelevancy of choice of the capital structure from the point of view of its influence on the company value) several theories which explain the choice of the companies’ capital structure were developed. There was no conventional theory which explained the company capital structure before the research by Modigliani/Miller. This theory became the starting point for all subsequent research into this structure. Inasmuch as the theory implicates ideal financial markets, introducing any ‘imperfect’ variables such as taxes, transaction costs, agency conflicts or the costs of bankruptcy results in erroneous conclusions being reached
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Schedule a callMore From: Journal of Corporate Finance Research / Корпоративные Финансы | ISSN: 2073-0438
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