The Impact of COVID-19 Economic Crisis on the Speed of Adjustment toward Target Leverage Ratio: An International Analysis

Abstract

This paper investigates changes in the speed of adjustment toward target leverage ratio under the impact of COVID-19 economic crisis. Using an international sample of publicly listed firms, we find that, on average, firms tend to adjust their capital structure more rapidly in the period following the breakout of COVID-19. Furthermore, we find that firms domiciled in countries in which COVID-19 causes more severe damage, adjust their target leverage quicker than firms domiciled in less severely affected countries. Overall, our study aims at developing a better un- derstanding of the impact of COVID-19 on corporate financing decisions.

Keywords: capital structure, leverage ratio, speed of adjustment, COVID-19

JEL Classification: G32, G31