Capital Structure Adjustment Speed Research Articles

Xi's anti-corruption campaign and the speed of capital structure adjustment

This paper examines how Xi's anti-corruption campaign impacts the speed of capital structure adjustment, as well as the underlying mechanism. We find that the firms speed up their leverage adjustment to the target since the inspections by CCDI covering the provinces that they are registered in. We examine the mechanism via various cross-section analyses. We find that the acceleration of leverage adjustment since the inspections can be found in both subsamples, however, the findings are more pronounced in more corrupted provinces, in Non-SOEs, in subsample without political connections, in small and medium-sized firms and young firms, and in over-leverage subsample. We then directly examine whether the resource allocation efficiency improved since the inspections by CCDI. We find that the positive relationship between the marginal productivity of capital and the capital inputs has been enhanced since the inspections by CCDI, however, we don't find much evidence for labor inputs. We can conclude that the inspections by CCDI shock the old political-business relationship and the informality of institutions, improve the institution quality, thus, lead to the improvement in resource allocation efficiency and the reduction of transaction costs, finally, accelerate the speed of capital structure adjustment.

Optimal Capital Structure and Leverage Adjustment Speed of European Public and Private Firms

In this research paper, the dynamic trade-off theory is tested by applying European public and private firms, since as much of the existing research remains in the US public firm context only. The results of our research show that European firms, both private and public, follow the optimal capital structure path consistent with the dynamic trade-off theory. We find that above optimally levered firms adjust their leverage towards the optimal capital structure faster than the below optimally levered ones. In addition, the results show that public and private firms seem to make similar leverage adjustment decisions and that not only the size but also the public/private status of the firms account for the differences. https://doi.org/10.15458/ebr103

Executive Stock Ownership, Dynamic Adjustment of Capital Structure and Corporate Performance: Evidence from Chinese Listed Marine Industry Companies

Guo, X.; Liang, P., and Xie, Z., 2020. Executive stock ownership, dynamic adjustment of capital structure and corporate performance: Evidence from Chinese listed marine industry companies. In: Gong, D.; Zhang, M., and Liu, R. (eds.), Advances in Coastal Research: Engineering, Industry, Economy, and Sustainable Development. Journal of Coastal Research, Special Issue No. 106, pp. 300–304. Coconut Creek (Florida), ISSN 0749-0208.Taking the Chinese A-share listed companies traded at Shanghai Stock Exchange and Shenzhen Stock Exchange from 2010 to 2017 as samples and further investigating companies concerned with marine industry, this paper conducts empirical research on the impact of executive stock ownership on capital structure adjustment and corporate performance. It also verifies whether the speed of adjustment and degree of capital structure deviation have mediating effects on the relationship between executive stock ownership and corporate performance. The research found that executive stock ownership significantly promotes capital structure adjustment, which exerts a certain degree of mediating effect on executive stock ownership and corporate performance, and that on differentiated levels of corporate debts, such an effect is more obvious in the over-indebted companies. When the executive stock ownership is less than 5%, the effect is more significant. In the group concerned with marine industry, the speed of capital structure adjustment and the degree of capital structure deviation exert partial mediating effects on the relationship between executive stock ownership and corporate performance.

The impact of loan rollover restrictions on capital structure adjustments, leverage deviations, and firm values

We use a Chinese regulatory change as a quasi-natural experiment to study the impact of short-term lending regulation shocks on firms. Specifically, we use a difference-in-differences method to identify the effects of the Chinese Lending Guideline 2007, which imposed a restriction on the rollover of short-term loans, on capital structure adjustment speeds, leverage deviations, and values of firms. We show that after the rollover restrictions, the capital structure adjustment speed slows down, and the capital structure deviation increases. Moreover, due to improved corporate governance, firms more relying on short-term loans increase their value more than their counterparts.

Capital structure adjustment speed over the business cycle

This paper extends the DeMazro and He (2019) model of capital structure dynamics by introducing macroeconomic conditions. Our goal is to analyze how business cycle risks impact a firm’s capital structure adjustment speed. Based on our calibration, the model predicts that the capital structure adjustment is slower in the presence of macroeconomic risk. Importantly, we also demonstrate that firms adjust their capital structure faster in good macroeconomic states versus bad economic states, which is consistent with empirical evidence. Finally, we provide several new predictions for how the key parameters of the model affect a firm’s capital structure adjustment speed.

Does the Quality of CSR Information Disclosure Affect the Speed of Capital Structure Adjustment?—Evidence from Chinese Listed Companies

This paper takes the balanced panel data of 376 A-share listed companies in 2010-2016 as a sample, and makes the quality of Corporate Social Responsibility (CSR) information disclosure as the research entry point. Based on the two-stage method, this paper tests the relationship between the quality of CSR information disclosure and the speed of capital structure adjustment of Chinese listed companies by using the difference-GMM. Empirical research shows that the higher the quality of CSR information disclosure, the faster the rate of capital structure adjustment. However, the speed of capital structure adjustment of non-state-owned enterprises is more sensitive to the quality of CSR information disclosure than that of state-owned enterprises.

Credit supply and capital structure adjustments

AbstractUsing the staggered deregulation of the U.S. banking industry as a series of exogenous shocks, I study the effect of the credit supply on the speed of capital structure adjustment. I find robust evidence that interstate and intrastate banking deregulation are positively associated with leverage adjustments. Specifically, the speeds of adjustment to target leverage are faster in the postderegulation periods. I also find that the positive effect is driven by firms that are financially constrained, are financially dependent on banks, and have less access to the public debt market and by deregulated banks’ ability to geographically diversify the credit risk.

Board interlocks and capital structure dynamics: evidence from China

AbstractUsing a sample of Chinese A‐share listed companies from the Shanghai and Shenzhen stock exchanges from 2007 to 2016, this paper investigates the effects of director network centrality on the speed of capital structure adjustment. The results indicate that firms in the central position of the director network have a higher speed of capital structure adjustment and a lower extent of deviation from the target capital structure. This effect is mainly significant for non‐state‐owned enterprises (non‐SOEs). Collectively, the evidence shows the network of interlocked directors creating mechanisms for information and resource exchanges, which enhance the efficiency of corporate financing polices.

DEBT CONTRACTS AND CAPITAL STRUCTURE ADJUSTMENT SPEED IN THE TEHRAN STOCK EXCHANGE

Purpose of the Study: A competitive market and the complexity of the business environment led to the special attention of practitioners in the field of economics to the capital structure and, especially, economic units of debts. The current study investigates the relationship between debt contracts and changes in the capital structure of 114 companies listed on the Tehran Stock Exchange from 2011 to 2016.
 Methodology: In this research, the data was extracted, classified, and calculated by using Excel software and ultimately, the hypotheses were tested at a 95% confidence level through E-views‏ ‏and Stata software.
 Conclusions / Results: The results indicate that there is no significant relationship among debt contracts, debt contract restrictions, and debt contract in the unfavorable financial conditions with the capital structure adjustment speed in the companies listed on the Tehran Stock Exchange in the studied time interval, but this relationship is visible between two variables of debt contracts and capital structure adjustment speed in the companies that have a high financial leverage.
 Novelty: The study of financing of leveraging methods is very important in considering different factors. That is, choosing any cheap or expensive debt on the part of the company, while changing the cost of capital, will create favorable profit opportunities or lead to a critical situation. Accordingly, the present research in the subject area, time, and place of interest can overcome the doubts of stakeholders in the mindset of companies.

최적자본구조와 산업별 자본구조 조정속도 추정

최적자본구조와 산업별 자본구조 조정속도 추정

Optimum Capital Structure Adjustment Speed on Companies Listed in Indonesia Stock Exchange

AbstractThis study examines the existence of adjustments in the speed of the company's capital structure to achieve an optimal capital structure in accordance with the dynamics of trade-off and other factors affecting the company's capital structure adjustment. The optimal capital structure is estimated by using several variables, namely tangibility, firm size, profitability, liquidity, asset utilization, and business risk. The factors used to predict the optimal capital structure adjustment speed in this study are the distance between the capital structure and the optimal capital structure and financial deficit. The data analysis technique in this study is multiple linear regression with a significance level of 5%. The obtained results indicate that companies on the IDX are adjusting towards the optimal capital structure. The speed of adjustment is 0.128 so it can be concluded that the company's adjustment remains below its optimal debt level. The test results also prove that distance and financial deficit/surplus have no influence on the company's capital structure adjustment speed. Keywords: capital structure, dynamics trade offKecepatan Penyesuaian Struktur Modal Optimal Perusahaan di Bursa Efek IndonesiaAbstrakPenelitian ini menguji keberadaan penyesuaian kecepatan struktur modal perusahaan menuju ke struktur modal optimal sesuai dengan dynamics trade off dan faktor-faktor yang mempengaruhi kecepatan penyesuaian struktur modal optimal perusahaan. Struktur modal optimal diestimasi dengan menggunakan beberapa variabel yaitu tangibility, firm size, profitability, liquidity, asset utilization, dan business risk. Faktor-faktor yang digunakan untuk menduga kecepatan penyesuaian struktur modal optimal pada penelitian ini adalah jarak antara struktur modal dengan struktur modal optimal (distance) dan financial deficit/surplus. Teknik analisis data yang digunakan pada penelitian ini adalah regresi linier berganda dengan tingkat signifikansi sebesar 5%. Hasil yang diperoleh menunjukkan perusahaan-perusahaan di BEI melakukan penyesuaian menuju struktur modal optimal. Kecepatan penyesuaian sebesar 0,128 sehingga dapat disimpulkan bahwa perusahaan-perusahaan melakukan penyesuaian masih di bawah tingkat hutang optimalnya. Hasil pengujian juga membuktikan bahwa tidak terdapat pengaruh distance dan financial deficit/surplus terhadap kecepatan penyesuaian struktur modal perusahaan. Kata Kunci: struktur modal, dynamics trade off

Speed of Adjustment Capital Structure

The aim of this study is to analyze the effect of company size variables, asset growth, asset structure and business risk against capital structure adjustment speed with dynamic approach. The number of samples in this study was 63 companies by using purposive sampling method. Multiple regression method with fixed effect model was used as data analysis in this study. The results of this study indicate that company size and asset structure have positive significant effect on capital structure adjustment speed, whereas asset growth has significant negativeeffect on capital structure adjustment speed and business risk does not have significanteffect on capital structure adjustment speed.

Asymmetric peer effects in capital structure dynamics

Using a semiparametric smooth-coefficient partial adjustment model, this study finds evidence for asymmetric peer effects on capital structure adjustment speeds between overlevered and underlevered firms. Overlevered firms’ adjustment speeds and peer firm shocks have a U-shaped relationship, while underlevered firms’ adjustment speeds monotonically increase with peer firm shocks.

What is the relation between financial flexibility and dividend smoothing?

This paper investigates the relation between financial flexibility and dividend smoothing policies. We use two proxies for financial flexibility; we measure levels of unused debt capacity and capital structure adjustment speeds. We find a nonlinear relation between unused debt capacity and dividend smoothing. For firms with high levels of unused debt capacity, this relation is positive. However, we find a negative effect for firms with low levels of unused debt capacity. Additionally, we show a positive relation between capital structure adjustment speeds and dividend smoothing. We find that firms absorb shocks to net income by changing their capital structure, and this change enables dividend smoothing. The effects we document are stronger for positive changes to a firm’s net income.

Debt Covenants and the Speed of Capital Structure Adjustment

This paper examines the impact of debt covenants on the speed of capital structure adjustment. Overall, we find that covenants lower the speed of adjustment by 10–13%, relative to the speed of adjustment of firms without covenants. The speed of adjustment is significantly lower, by 40–50%, for firms with the most intense covenant provisions. In particular, we find that capital covenants, as opposed to performance covenants, appear to be the main mechanism that lowers the speed of adjustment, delaying the speed of capital structure adjustment by 86%. We find that the speed of adjustment is reduced more for strict capital covenants than for strict performance covenants. We also show that, for firms that are cash and financially constrained, covenants impede the speed of adjustment even more. Lastly, we show that the negative relationship between covenants and the speed of adjustment is more pronounced for firms that are over-levered.

Dynamic Capital Structure Adjustments and Business Group Affiliations: Indian Evidence

This study examines the asymmetries in capital structure adjustment speed depending on firms’ affiliation to business groups. Using partial adjustment framework on a dataset of 2001 listed Indian non-financial firms over the period of 2005–2013, it was found that Indian firms annually adjusted about 37 percent of their deviation from target leverage. Groups firms, in general, adjust their leverage ratio slower than the stand-alone firms, suggesting lesser net benefits of adjustment for the former than the latter. The results are persistent irrespective of firms’ extent of deviation from their target leverage. However, the net benefits of adjustment and consequently the adjustment speed for both the groups of firms, irrespective of their extent of deviation from target leverage, seem to be alike, when they are over-levered and lower for group firms than the stand-alone firms, when they are under-levered. These findings indicate that both group and stand-alone firms face identical threats, when they are over-levered, whereas group firms possibly have alternative arrangements to reduce the owner–manager agency conflicts and tax liability, when they are under-levered. These findings are expected to prove helpful for financial managers in designing their capital structure based on ownership structure, and the nature and extent of deviation from the target leverage.

How does corporate social responsibility change capital structure?

How do creditors view the existence of corporate social responsibility (CSR) strategies? Our study investigates the effect of CSR on information asymmetry between firms and creditors. Using Chinese listed firms as samples, our paper adopts propensity score matching to reconstruct the new samples to randomly assign CSR reportage to firms. We then use a differences-in-differences approach to construct our hypotheses as follows. First, firms that employ CSR strategies possess higher leverage than firms that do not. Second, the presence of CSR reports reduces the speed of capital structure adjustment, and the adjustment speeds of above-target leverage firms tend to be slower than those of below-target leverage firms. Third, CSR reports provide long-term predictions to creditors, enabling firms that issue them to maintain higher long-term leverage compared with firms that do not incorporate CSR into their operations. In summary, on the basis of causal inference, we conclude that CSR can considerably reduce information asymmetry between firms and creditors.

Debt covenants and the speed of capital structure adjustment

This paper examines the impact of debt covenants on the speed of capital structure adjustment. Overall, we find that covenants lower the speed of adjustment by 10–13%, relative to the speed of adjustment of firms without covenants. The speed of adjustment is significantly lower, by 40–50%, for firms with the most intense covenant provisions. In particular, we find that capital covenants, as opposed to performance covenants, appear to be the main mechanism that lowers the speed of adjustment, delaying the speed of capital structure adjustment by 86%. We find that the speed of adjustment is reduced more for strict capital covenants than for strict performance covenants. We also show that, for firms that are cash and financially constrained, covenants impede the speed of adjustment even more. Lastly, we show that the negative relationship between covenants and the speed of adjustment is more pronounced for firms that are over-levered.

Regional variation in the capital structure adjustment speed of listed firms: Evidence from China

This paper investigates whether in China, a country large in size, geographically diverse and imbalanced in regional economic development, variation in firm capital structure11Capital structure=total debt/(total debt+market equity), It stands for a firm's leverage ratio. is systematically related to regional economic environment. In addition, we examine whether during macroeconomic recovery there is significant difference in the speed of adjustment in capital structure of firms located in different regions. The empirical analyses are based on 783 firms listed on Shanghai and Shenzhen Stock Exchanges during a sample period of year 2000 through 2014. Using GMM and Logit QMLE, we found strong evidence that the regional variation in the capital structure of listed firms is linked to growth indicator (the Market-to-Book value, MB), EBIT ratio, size of the firm and tangible assets (the value of Net Property, Plant and Equipment, PPE). In the process of economic recovery, there was apparent regional variation in the speed of adjustment in capital structure, i.e. the fastest adjustment in capital structure was found in East China while that of West China followed and that of Mid China the slowest, that is to say within a given period the leverage ratio of listed firms in East China rises or falls faster than in the other two regions.

Impact of Business Group Affiliation on Capital Structure Adjustment Speed: Evidence from Indian Manufacturing Sector

Firms’ capital structure dynamics and ownership structure are two extensively studied subjects of research in corporate finance in recent years. This study combines these two branches of research and examines the impact of firms’ ownership structure on capital structure dynamics. More specifically, it examines the asymmetry in adjustment speed between group and stand-alone firms. The study uses data of 1,415 listed Indian manufacturing firms over the period of 2005–2013 (9 years) from ‘Capitaline Plus’ database. It specifies a partial adjustment model and uses the generalized method of moments (GMM) technique to estimate the adjustment speed. The results show that Indian manufacturing firms close about 30 percent of their leverage gap every year. For group firms, the annual speed of adjustment is about 20–29 percent whereas for stand-alone firms, it is about 38–41 percent. Lesser potential benefits or higher costs of adjustments may be responsible for slower adjustment speed of group firms than their stand-alone counterparts.