Impact of size and earnings on speed of partial adjustment to target leverage: a study of Indian companies using two-step system GMM

Pankaj Sinha and Sandeep Vodwal ()
Additional contact information
Sandeep Vodwal: University of Delhi

International Journal of System Assurance Engineering and Management, 2022, vol. 13, issue 2, No 31, 957-977

Abstract: Abstract The current study examines the differential adjustment speed to target leverage based on size and profit for Indian non-financial firms, using the two-step system GMM methodology. The results rely on a panel data sample of 431 listed firms from 2002 to 2017. The findings advocate that the Indian firms are likely to achieve optimum capital structure and bridge the actual and target leverage gap at 41.3% per annum. Notably, the speed of partial adjustment to the target leverage is significantly impacted by the firm’s size and profit. Large and highly profitable firms tend to adjust their debt financing ratio at a higher speed (66.2%) in comparison to loss-making or low profit-making firms and small firms (58%). At the same time, small size and average profitable firms have the lowest (46.5%) rate of adjustment to the target capital structure. The findings indicate that recapitalization costs for Indian non-financial firms are lower, if they are closer to the target leverage.

Keywords: Dynamic trade-off; Target leverage; Partial adjustment; System GMM (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s13198-021-01374-7 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:ijsaem:v:13:y:2022:i:2:d:10.1007_s13198-021-01374-7

Ordering information: This journal article can be ordered from
http://www.springer.com/engineering/journal/13198

DOI: 10.1007/s13198-021-01374-7

Access Statistics for this article

International Journal of System Assurance Engineering and Management is currently edited by P.K. Kapur, A.K. Verma and U. Kumar

More articles in International Journal of System Assurance Engineering and Management from Springer, The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().