Proactive Capital Structure Adjustments: Evidence from Corporate Filings
50 Pages Posted: 21 Jun 2018 Last revised: 10 Jun 2020
Date Written: June 9, 2020
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: Suggested Citation