Capital Structure Determinants, Dynamics and Speed of Adjustment Towards Target Leverage: A Systematic Literature Review of Empirical and Theoretical Disciplines
International Journal of Recent Scientific Research Vol. 11, Issue, 02 (E), pp. 37517-37528
12 Pages Posted: 21 Apr 2020
Date Written: February 28, 2020
This article aims at defining the main gaps and presenting the results of literature about the determinants of capital structure, capital structure dynamics and the determinants of the speed of adjustment towards target leverage. Beside the effects of firm-specific determinants, the article covers the major macro-economic events affecting capital structure decisions like the global financial crisis as well as political uncertainty. The article also shed the light on the differences between banks and non-financial institutions in terms of rules and regulations that shape the dynamic behavior of utilizing the different sources of finance.
As a conceptual article, the author employed a reflective stance by counting solely on secondary literature. According to Dzansi and Hoeyi (2013), this stance is consistent with interpretivist reasoning in the social sciences.
Analysis of empirical studies revealed that the capital structure decision is influenced by profitability, size of the firm, asset tangibility, non-debt tax shield, and growth. Too, results from different markets indicated that firms follow the implications of the pecking order theory in a sense that; firms adjust capital structure towards a target leverage ratio. The speed of adjustment is affected by firm characteristics (like size and growth) as well as the distance between current and target leverage ratios.
This article presents opportunities for future research in capital structure topic based on the presented literature gaps.
To the best of author’s knowledge, this is the first article to address considerable number of papers in a large period of time for different aspects of capital structure and offer recommendations for future research based on the identified gaps.
Keywords: Capital structuredynamics; Speed of adjustment; Pecking order theory; Information asymmetry; Partial adjustment model; Political uncertainty.
JEL Classification: G20
Suggested Citation: Suggested Citation