Proactive Capital Structure Adjustments: Evidence from Corporate Filings

42 Pages Posted: 21 Jun 2018 Last revised: 3 Feb 2019

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: February 1, 2019

Abstract

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

Korteweg, Arthur G. and Schwert, Michael and Strebulaev, Ilya A., Proactive Capital Structure Adjustments: Evidence from Corporate Filings (February 1, 2019). 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

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