Speed of adjustment and optimal leverage: evidence from South Asian family firms

Muhammad Mushtaq, Chu Ei Yet, Muhammad Tahir and Badal Khan

Macroeconomics and Finance in Emerging Market Economies, 2025, vol. 18, issue 1, 81-100

Abstract: This study examines how family firms adjust their leverage towards optimal leverage. We use the dynamic system generalized method of moments (GMM) for analysis. The findings reveal that South Asian family firms adjust about 24% towards target leverage using market leverage and about 28% while using book leverage. The findings further suggest that growth opportunities, GDP growth rate, distance, lending rate, term spread, and short-term interest rate increase the speed of adjustment towards the target leverage. On the contrary, profitability and differential between the T-bills rate and the bank rate decrease the speed of adjustment.

Date: 2025
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DOI: 10.1080/17520843.2023.2256116

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