Proactive Capital Structure Adjustments: Evidence from Corporate Filings
42 Pages Posted: 21 Jun 2018 Last revised: 3 Feb 2019
Date Written: February 1, 2019
We use new hand-collected data from corporate filings to study the drivers of proactive capital structure adjustment by firms. We document substantial heterogeneity in adjustment frequency, with a small subset of firms accounting for the majority of leverage changes in the data. These frequently adjusting firms use lines of credit to fund working capital and investment, often in the presence of losses. Infrequently adjusting firms instead use long-term debt and equity to fund investment. Our findings highlight linkages between a firm’s operating needs and its financing choices and suggest that adjustment costs of long-term issuance are higher than previously thought.
Keywords: capital structure, leverage, adjustment costs
JEL Classification: G32
Suggested Citation: Suggested Citation