Partial adjustment toward target capital structure: Evidence from selected African countries

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This paper investigates the firm-specific determinants of target capital structure and the speed of adjustment towards this target for industrial firms in four African countries. In addition to using a two-stage, dynamic partial adjustment model which sheds light on the dynamic nature of the adjustment process, various definitions of leverage are also used to check for robustness. The findings of the paper indicate that African firms adjust faster to short-term debt targets than they do to longterm debt targets. Furthermore, firms in Nigeria and South Africa adjust relatively faster to their target capital structures, whereas firms in Ghana and Kenya have slower speeds of adjustment, pointing to the existence of higher adjustment costs and less-developed capital markets in these countries. The speeds of adjustment obtained range from 17.9%-60.2% per year, consistent with international evidence regarding speeds of adjustment in other developing and emerging economies