Proactive Capital Structure Adjustments: Evidence from Corporate Filings

50 Pages Posted: 21 Jun 2018 Last revised: 10 Jun 2020

See all articles by Arthur G. Korteweg

Arthur G. Korteweg

University of Southern California - Marshall School of Business

Michael Schwert

University of Pennsylvania - The Wharton School

Ilya A. Strebulaev

Stanford University - Graduate School of Business; National Bureau of Economic Research

Date Written: June 9, 2020

Abstract

We use new hand-collected data from corporate filings to study the drivers of capital structure adjustment by firms. Classifying firms by their frequency of leverage adjustment, we reveal previously unknown patterns in their reasons for financing and financial instruments used. Some behaviors are consistent with existing theory, while others are understudied. Without detailed filings data, several findings would be difficult to explain. We also show that a large fraction of leverage changes are outside of the firm's control (e.g., executive option exercise) or incur negligible adjustment costs (e.g., credit line usage). The frequency of proactive leverage adjustments is therefore lower than indicated by prior research that is based on accounting data, suggesting that costs of adjustment are higher, or the benefits lower, than previously thought.

Keywords: capital structure, leverage, adjustment costs

JEL Classification: G32

Suggested Citation

Korteweg, Arthur G. and Schwert, Michael and Strebulaev, Ilya A., Proactive Capital Structure Adjustments: Evidence from Corporate Filings (June 9, 2020). Stanford University Graduate School of Business Research Paper No. 18-31, Available at SSRN: https://ssrn.com/abstract=3192267 or http://dx.doi.org/10.2139/ssrn.3192267

Arthur G. Korteweg

University of Southern California - Marshall School of Business ( email )

3670 Trousdale Parkway
Los Angeles, CA 90089
United States

HOME PAGE: http://www-bcf.usc.edu/~korteweg/

Michael Schwert (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Ilya A. Strebulaev

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

HOME PAGE: http://faculty-gsb.stanford.edu/strebulaev/

National Bureau of Economic Research ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
257
Abstract Views
1,279
rank
130,861
PlumX Metrics