Firm heterogeneity, macroeconomic conditions and capital structure adjustment speeds: Evidence from the JSE

Abstract

ABSTRACTThis paper examines the effects of firm heterogeneity and macroeconomic conditions on the adjustment speed towards the target level of capital structure. The DPF estimator is used to carry out the analysis for a panel of 191 non-financial firms listed on the JSE for the period 2000 to 2010. Consistent with prior studies, the pace of adjustment towards the optimal capital structure is a function of firm specific characteristics and macroeconomic conditions. There is evidence to suggest that firms target the total and long term leverage, and not the short term leverage ratio. Firm level characteristics are shown to have differing effects on the adjustments speeds, and macroeconomic conditions play a significant role in influencing variations in capital structure adjustment speeds.