Social trust and the speed of corporate leverage adjustment: evidence from around the globe

Peng Huang, Yue Lu and Robert Faff

Accounting and Finance, 2021, vol. 61, issue 2, 3261-3303

Abstract: We examine the relation between social trust and the speed of leverage adjustment (SOA) around the world. Using a large international sample (65 countries, 1996–2016), we find that social trust has a positive effect on SOA. In the cross section, we find that the positive effect of social trust on the SOA is more pronounced for: (i) over‐levered firms; (ii) firms with higher information asymmetry; (iii) firms with lower ease of financing; and (iv) firms located in countries with weaker governance quality. Overall, we highlight the role of social trust in shaping corporate capital structure.

Date: 2021
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https://doi.org/10.1111/acfi.12701

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