Drobetz, Wolfgang; Wanzenried, Gabrielle (September 2004). What Determines the Speed of Adjustment to the Target Capital Structure? (Discussion Papers 04-15). Bern: Department of Economics
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We use a dynamic adjustment model and panel methodology to investigate the determinants of a time-varying optimal capital structure. Because firms may temporarily deviate from their optimal capital structure in the presence of adjustment costs, we also endogenize the adjustment process. In particular, we analyze the effects of firm-specific characteristics as well as macroeconomic factors on the speed of adjustment to the target leverage. Our sample comprises a panel of 90 Swiss firms over the years 1991 to 2001. We find that faster growing firms and those that are further away from their optimal capital structure adjust more readily. Our results also reveal interesting interrelations between the adjustment speed and popular business cycle variables. For example, the speed of adjustment is higher when the term spread is higher, i.e., when economic prospects are good.
Item Type: |
Working Paper |
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Division/Institute: |
03 Faculty of Business, Economics and Social Sciences > Department of Economics > Institute of Economics |
Subjects: |
300 Social sciences, sociology & anthropology > 330 Economics |
Series: |
Discussion Papers |
Publisher: |
Department of Economics |
Language: |
English |
Submitter: |
Lars Tschannen |
Date Deposited: |
16 Sep 2020 16:52 |
Last Modified: |
16 Sep 2020 16:52 |
JEL Classification: |
G32, C23, E44 |
BORIS DOI: |
10.7892/boris.145648 |
URI: |
https://boris.unibe.ch/id/eprint/145648 |
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