Business Faculty Publications
Document Type
Article
Publication Date
2-28-2019
Publication Title
Journal of International Money and Finance
Keywords
Capital structure, Trade-off theory, Partial adjustment model, Target financing model, Random financing, Speed of adjustment
Disciplines
Business | Finance and Financial Management
Abstract
The conventional partial adjustment model, which focuses on leverage evolution, has difficulty identifying deliberate capital structure adjustments as it confounds financing decisions with the mechanical autocorrelation of leverage. We propose and estimate a financing-based partial adjustment model that separates the effects of financing decisions on leverage evolution from mechanical evolution. The speed of adjustment (SOA) is firm specific and stochastic, and active targeting of capital structure has a multiplier effect that depends on the size of financial deficit. Overall, we find expected SOA from active rebalancing
(30%) more than doubles what is expected from mechanical mean reversion alone (13%).
Recommended Citation
Maroney, Neal; Wang, Wei; and Hassan, M. Kabir, "Incorporating Active Adjustment into a Financing Based Model of Capital Structure" (2019). Business Faculty Publications. 281.
https://engagedscholarship.csuohio.edu/bus_facpub/281
DOI
10.1016/j.jimonfin.2018.09.011
Version
Postprint
Publisher's Statement
This is the author’s version of a work that was accepted for publication in Journal of International Money and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in the Journal of International Money and Finance, 90, (2019), 10.1016/j.jimonfin.2018.09.011.
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Volume
90
