Institutional determinants of capital structure adjustment speeds

Ozde Oztekin () and Mark Flannery

Journal of Financial Economics, 2012, vol. 103, issue 1, 88-112

Abstract: Many authors relate a firm's performance to legal and political features and the regulatory environment in which it operates. This article compares firms' capital structure adjustments across countries and investigates whether institutional differences help explain the variance in estimated adjustment speeds. We find that legal and financial traditions significantly correlate with firm adjustment speeds. More narrowly, institutional features also relate to adjustment speeds, consistent with the hypothesis that better institutions lower the transaction costs associated with adjusting a firm's leverage. Such associations between institutional arrangements and leverage adjustment speeds are consistent with the dynamic trade-off theory of capital structure choice.

Keywords: Dynamic capital structure; Trade-off theory; International; Partial adjustment; Institutions (search for similar items in EconPapers)
JEL-codes: F33 G15 G32 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (212)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:103:y:2012:i:1:p:88-112

DOI: 10.1016/j.jfineco.2011.08.014

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