LONG-TERM ADJUSTMENT OF CAPITAL STRUCTURE: EVIDENCE FROM SINGAPORE, HONG KONG AND TAIWAN

Terence Tai Leung Chong, Daniel Tak-Yan Law and Lin Zou
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Daniel Tak-Yan Law: Department of Economics, The Chinese University of Hong Kong, Shatin, NT, Hong Kong SAR, Hong Kong
Lin Zou: Department of Economics, Dorothy Y. L. Wong Building, Lingnan University, 8 Castle Peak Road, Tuen Mun, NT, Hong Kong SAR, Hong Kong

The Singapore Economic Review (SER), 2012, vol. 57, issue 04, 1-22

Abstract: This paper examines the impact of profitability, stock price performance and growth opportunity on the capital structure of firms in Singapore, Taiwan and Hong Kong. In contrast to Kayhan and Titman (2007), it is found that firms in these three Chinese-dominated economies strongly prefer debt to equity or internal fund financing. They also take advantage of stock price appreciation by issuing more shares. An adjustment model for debt ratios is estimated. The results suggest that the leverage ratios of these firms slowly adjust toward their target levels. Deviations from the target due to the pecking order and market timing effects are found to be significant.

Keywords: Capital structure; market timing; pecking order; financial deficit; G3 (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1142/S0217590812500270

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