Adjustment speed of capital structure: A literature survey of empirical research

Ha Thanh Nguyen, Balachandran Muniandy and Darren Henry

Australian Journal of Management, 2024, vol. 49, issue 3, 448-477

Abstract: We synthesize empirical studies on the determinants of the heterogeneity in the adjustment speed (speed of adjustment; SOA) of capital structure. These determinants are categorized into six groups, namely, (1) firm-specific characteristics, (2) financial reporting and managerial incentives, (3) corporate governance, (4) informal institutions, (5) financial market attributes and (6) economy-wide attributes. From this analysis, we perceive important potential research questions linked to identifying channels associated with the costs and frictions explaining SOA heterogeneity, including financial reporting quality aspects, firm internal and external monitoring mechanisms and institutional and cultural elements. Interesting avenues for future research also include considering SOA dynamics for comparable cross-country samples and the investigation of the subsequent consequences of capital structure adjustments. JEL Classification: G30, G32, G34, M41

Keywords: Capital structure dynamics; corporate governance; financial markets; financial reporting; informal institutions; speed of leverage adjustment (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:49:y:2024:i:3:p:448-477

DOI: 10.1177/03128962231154744

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