An Integrated Model of Capital Structure to Study the Differences in the Speed of Adjustment to Target Corporate Debt Maturity Among Developed Countries
International Journal of Banking, Accounting and Finance, Vol. 3, No. 4, 2011
39 Pages Posted: 20 Dec 2011 Last revised: 29 May 2017
Date Written: October 10, 2011
In this paper we propose an integrated model of capital structure to study the partial adjustment process to the optimal long term debt ratio. In our analysis we consider the characteristics of the institutional environment as a factor that influences such adjustment. We use a sample of quoted firms from Germany, Denmark, Spain, Italy, United States, Australia, Belgium, United Kingdom and France for the period 1995-2004. The key findings are that the firms follow optimal long-term debt ratios. Such optimal ratios are determined by firm characteristics identified in the trade off, pecking order and market timing theories and by the country institutional environment. We observe that in those countries with lower cost of adjustment, essentially in those where banks are the main source of funds, firms can reach their target debt ratio in half the time needed by those countries with higher adjustment costs.
Keywords: capital structure, target debt maturity, institutional environment, panel data
JEL Classification: G32
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