Institutional Determinants of Capital Structure Adjustment Speeds

58 Pages Posted: 30 Mar 2009 Last revised: 26 Feb 2013

See all articles by Özde Öztekin

Özde Öztekin

Florida International University (FIU)

Mark J. Flannery

University of Florida - Department of Finance, Insurance and Real Estate

Date Written: September 1, 2008

Abstract

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

Öztekin, Özde and Flannery, Mark Jeffrey, Institutional Determinants of Capital Structure Adjustment Speeds (September 1, 2008). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1364273 or http://dx.doi.org/10.2139/ssrn.1364273

Özde Öztekin (Contact Author)

Florida International University (FIU) ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

Mark Jeffrey Flannery

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
352-392-3184 (Phone)
352-392-0103 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
663
Abstract Views
3,663
rank
40,747
PlumX Metrics