Abstract
ABSTRACTThis research article aims at examining the determinants of speed of adjustment (SOA) toward the optimum capital structure (OCS). Particularly, this study focuses the impact of firm-specific factors and corporate governance factors on the capital structure adjustment in the Sri Lankan context. The methodology utilizes the benefits of the partial (stock) adjustment model, namely, two-step panel framework using generalised method of moments (GMM) to determine the SOA to OCS. The results indicate that Sri Lankan firms are found to have an OCS and do rapidly adjust toward their target structures. Further this study reveals that profitability, size, tangibility, nondebt tax shields, and governance factors such as directors’ compensation and CEO duality significantly affect the SOA to OCS. The past studies in the emerging market context hardly go into corporate governance factors, leaving a large space for research in the area of capital structure. This study of the listed firms in Sri Lanka contributes to the literature, by examining the determinants of SOA to OCS decision.
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