Firm crash risk, information environment, and speed of leverage adjustment

Zhe An (), Donghui Li and Jin Yu

Journal of Corporate Finance, 2015, vol. 31, issue C, 132-151

Abstract: This paper examines the effect of a firm's crash-risk exposure on its speed of leverage adjustment (SOA), and how this effect is influenced by the information environment of the country in which the firm is located. We employ a panel of 19,247 firms across 41 countries from 1989 to 2013, and we find that firms with a higher crash-risk exposure tend to adjust their financial leverages more slowly toward their targets. This evidence supports the dynamic trade-off theory that firms with larger transaction costs adjust their capital structures less often. Equally important, we document that the negative link between crash-risk exposure and SOA is less pronounced in countries with a more transparent information environment.

Keywords: Capital structure dynamics; Information asymmetry; Crash risk; Information environment (search for similar items in EconPapers)
JEL-codes: G15 G32 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (53)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:31:y:2015:i:c:p:132-151

DOI: 10.1016/j.jcorpfin.2015.01.015

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