Shareholders' preferences on initial leverage in the determination of firm's leverage

Nurdin Nurdin

International Journal of Business and Globalisation, 2017, vol. 19, issue 4, 477-496

Abstract: The persistence of capital structure still puzzles. One of the arguments why persistence occurs is due to the adjustment to the optimal level of leverage of slow done or not done in full, due to the significant costs associated with such adjustments. However, some facts indicate that the process of adjustment to the optimal leverage level remains slow even though the company has a cheap way to make adjustments. This study proposes an alternative answer, i.e., the possibility of the existence of shareholders' preferences on initial leverage in the determination of the firm's leverage. This possibility was tested by developing a model of partial adjustment to the optimal level of leverage set at the beginning of the establishment of the company. This study concludes that the persistence of capital structure is partly due to the preferences of the shareholders on initial leverage in the determination of firm's leverage.

Keywords: shareholders; preferences; leverage; persistence; adjustment. (search for similar items in EconPapers)
Date: 2017
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