Financial flexibility and the persistence of extreme financial leverage policies: A new empirical approach
Tahera Ebrahimi and
Basil Al‐Najjar
Financial Markets, Institutions & Instruments, 2025, vol. 34, issue 2, 85-108
Abstract:
Firms might adopt capital structure policies which are far away from their optimal targets, this is known in the literature as extreme financing policies. Unlike previous empirical studies, our research sheds new light on the impact of financial flexibility (changes in credit ratings and over/underinvestment) on the duration of these policies. Using a large sample of US firms for the period from 1985 to 2017, we employ a novel empirical approach of multilevel survival model estimators for different subsamples of conservative and aggressive debt policy users. The results show that, on average, the duration of extreme financing policies renders the degree of urgency to shift towards firms' optimal leverage. Accordingly, firms adopting extreme financial policies are less keen to adjust quickly to their target debt ratios and such speed of adjustment varies between conservative and aggressive debt users. Our results provide interesting empirical implications for firms adopting conservative or aggressive debt policies.
Date: 2025
References: Add references at CitEc
Citations:
Downloads: (external link)
https://doi.org/10.1111/fmii.12211
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:wly:finmar:v:34:y:2025:i:2:p:85-108
Access Statistics for this article
More articles in Financial Markets, Institutions & Instruments from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().