Institutional Determinants of Capital Structure Adjustment Speeds
58 Pages Posted: 30 Mar 2009 Last revised: 26 Feb 2013
Date Written: September 1, 2008
Many authors relate a firm’s performance to legal and political features and the regulatory environment in which it operates. This article compares firms’ capital structure adjustments across countries and investigates whether institutional differences help explain the variance in estimated adjustment speeds. We find that legal and financial traditions significantly correlate with firm adjustment speeds. More narrowly, institutional features also relate to adjustment speeds, consistent with the hypothesis that better institutions lower the transaction costs associated with adjusting a firm’s leverage. Such associations between institutional arrangements and leverage adjustment speeds are consistent with the dynamic trade off theory of capital structure choice.
Keywords: dynamic capital structure, international, partial adjustment, institutions
JEL Classification: G20, G32
Suggested Citation: Suggested Citation