Partial Adjustment Towards Target Capital Structure: Evidence from New Zealand

Smith, Darnell; Chen, Jianguo; Anderson, Hamish D.

doi:10.2139/ssrn.1640324

Cited by 4 publications

(10 citation statements)

References 29 publications

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“…The following criteria are used with the purposive sampling method: (a) Companies in the manufacturing sector listed on the Indonesia Stock Exchange for the 2009-2018 period (b) companies that publish financial reports consecutively during the study period 2009-2018 (c) compa- Smith et al (2010) states that the partial adjustment model is supported by the results of other studies in estimating the speed of capital structure adjustment. On the other hand, in Cahyaningdyah (2019) use of a two-stage partial adjustment model assumes that all companies in the sample adjust at the same average speed and are more flexible.…”

Section: Methodsmentioning

confidence: 99%

“…The first step is to estimate the target leverage regression equation (Lev*) for each industrial sector. The following is the equation for calculating the speed of capital structure adjustment which refers to the study ( Smith et al, 2010;Cahyaningdyah, 2019).…”

Section: Methodsmentioning

confidence: 99%

“…Research on the speed of adjustment was also carried out in developed countries, Smith et al (2010) in their findings explaining that companies in New Zealand are moving towards the leverage target at the level of 58.7%. Mukherjee and Wang (2013) found that the average adjustment speed across U.S. firms is around 12%.…”

Section: Hypotheses Developmentmentioning

confidence: 99%

“…Research on the speed of adjustment was also carried out by developed countries, Smith et al (2010) their findings explaining that companies in New Zealand are moving towards the leverage target at the level of 58.7%. In non-financial companies in Thailand the present study examines the dynamic aspects of capital structure of 269 non-financial listed firms in Thailand from 2000 to 2009.…”

Section: Miscelleneousmentioning

confidence: 99%

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The Heterogeneity of Speed of Adjustment Capital Structure Across Industrial Sectors

Robiatun

Witiastuti²

2021

MAJ

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This study aims to analyze heterogeneity of speed of adjustment on basic industry, consumer goods, and misceleeneous companies. The population in this study uses basic industry, consumer goods, and miscellenoeus companies listed on the Indonesia Stock Exchange in 2009-2018 period. The method of determining the sample using a pusposive sampling technique based on criteries determined by researchers. We employ two-step partial adjustment model and use measure of book leverage and firm characteristic; profitability, size, tangibility, and growth which has an influence leverage target to estimate speed of adjustment. For three industries, there is evidence of heterogeneity of speef adjustment. The result showed that speed of adjustment 24% of basic industry, 37.1% of consumer goods, and 27.3% of miscellaneous industry.

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Section: Methodsmentioning

confidence: 99%

Section: Methodsmentioning

confidence: 99%

Section: Hypotheses Developmentmentioning

confidence: 99%

Section: Miscelleneousmentioning

confidence: 99%

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The Heterogeneity of Speed of Adjustment Capital Structure Across Industrial Sectors

Robiatun

Witiastuti²

2021

MAJ

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“…Hovakimian, Opler & Titman (2011) also report an inverse relation between target leverage and changes in share price. Masulis (1980), Asquith and Mullins (1986), and Smith, Jianguo & Hamish (2010) found that stock prices act favorably towards announcements of leverage-increasing transactions but unfavorably towards announcements of leverage-decreasing transactions. These results are not consistent with the hypothesis that firms adjust towards the optimal (from the shareholders' point of view) capital structure when they reduce their leverage.…”

Section: Partial Adjustment Modelsmentioning

confidence: 99%

Managing the Gap Between Actual and Target Capital Structure: an Evidence From Pakistan

Rafay

Gilani

Ijaz

2019

JMR

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Investment framework is one of the most significant components that impact the company's value. Reliable funding choices for a company generally lead to a capital structure that increases the firm's value (Abor, 2006). Early studies provide contradictory reviews about a company's capital structure decisions. This paper investigates the partial adjustment model for a company's target capital structure. The study also explores how companies operating in different sectors of Pakistani market adjust towards the target capital structure levels. The study also recognizes that an unanticipated share price change also have an effect on the target capital structure. The results indicate that companies do have target leverage and that their adjustment speed varies from sector to sector of the Pakistani market. A typical sector closes more than 50% of the gap between its actual and its target debt ratios within one year.

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Determinants of the adjustment speed of capital structure

Lemma

Negash

2014

Journal of Applied Accounting Research

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Purpose – The purpose of this paper is to examine the role of institutional, macroeconomic, industry, and firm characteristics on the adjustment speed of corporate capital structure within the context of developing countries. Design/methodology/approach – The authors considers a sample of 986 firms drawn from nine developing countries in Africa over a period of ten years (1999-2008). The study develops dynamic partial adjustment models that link capital structure adjustment speed and institutional, macroeconomic, and firm characteristics. The analysis is carried out using system Generalized Method of Moments procedure which is robust to data heterogeneity and endogeneity problems. Findings – The paper finds that firms in developing countries do temporarily deviate from (and partially adjust to) their target capital structures. Our results also indicate that: more profitable firms tend to rapidly adjust their capital structures than less profitable firms; the effects of firm size, growth opportunities, and the gap between observed and target leverage ratios on adjustment speed are functions of how one measures capital structure; and adjustment speed tends to be faster for firms in industries that have relatively higher risk and countries with common law tradition, less developed stock markets, lower income, and weaker creditor rights protection. Research limitations/implications – Future research should focus on examination of the adjustment speed of debt maturity structure. Identification of industry-specific characteristics that affect the pace with which firms adjust their capital structure to the optimum is another possible avenue for future research. Practical implications – Our findings have practical implications for corporate managers, governments, legislators, and policymakers. Originality/value – The study focuses on firms in developing countries for which the literature on adjustment speed of capital structure is virtually non-existent. Furthermore, unlike previous works on capital structure, it explicitly models industry variable as one of the determinants of adjustment speed. Therefore, it contributes to the literature on capital structure and adjustment speed in general and to the literature on developing countries in particular.

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Partial Adjustment Towards Target Capital Structure: Evidence from New Zealand

Cited by 4 publications

References 29 publications

The Heterogeneity of Speed of Adjustment Capital Structure Across Industrial Sectors

The Heterogeneity of Speed of Adjustment Capital Structure Across Industrial Sectors

Managing the Gap Between Actual and Target Capital Structure: an Evidence From Pakistan

Determinants of the adjustment speed of capital structure

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