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Speed of Adjustment and Financial Constraints: Evidence from the UK

Hafezali Iqbal Hussain, Shamsudin Mohd Farid, Jabarullah Noor H, Salem Milad Abdelnabi and Fekri Shawtari ()

MPRA Paper from University Library of Munich, Germany

Abstract: Our paper estimates the speed of moment adjustment based on the first difference of the lead (t+1) leverage levels (actual lead) and lag (t-1) leverage levels (actual lag) to the first difference of simulated lead (target) leverage levels and lag levels (actual lag leverage) for firm level data. We introduce an intrinsic limitation (financial constraints) to the model to test the impact on speed of adjustment and distance reduction. We find that financial constraints have a statistically and economically significant impact on rate of adjustment and distance reduction to target leverage levels.

Keywords: Capital Structure; Financial Constraints; Financial Econometrics; Speed of Adjustment; UK Firms (search for similar items in EconPapers)
JEL-codes: G3 G32 (search for similar items in EconPapers)
Date: 2016-10
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Published in Indian Journal of Science and Technology 38.9(2016): pp. 1-6

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