Refereed Article

Year

2017

Author(s)

Wolfgang Drobetz

Dimitrios Gounopoulos

Andreas G. Merikas

Anna Merika

Journal

European Financial Management

Status

forthcoming

Research Area

Ship Finance 

Keywords

Earnings management, voluntary disclosure environment, forecast accuracy, IPOs

Abstract

This study analyzes the heterogeneity in the speed of capital structure adjustment. Using a doubly-censored Tobit estimator that accounts for mechanical mean reversion in leverage ratios, the speed of adjustment is 25% per year in a large international sample, supporting the economic relevance of the trade-off theory. Differences in the adjustment speed across distinct financial systems are attributable to differences in the costs of adjustment. Macroeconomic and micro-level supply-side constraints also affect the dynamics of leverage. Firms adjust more slowly during recessions, and the effect on adjustment speed is most pronounced for financially constrained firms in market-based countries.

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