We investigate the capital structure and the dynamic behaviour of firms’ debt ratios in a large sample of companies from 52 countries. Our findings support a complex view of capital structure decisions,with firm, macroeconomic and institutional factors interacting in the determination of both the optimal leverage and the adjustment process towards it. This results in a complex non-linear dynamic behaviour of firms’ debt-to-equity ratios. These interactions contribute for almost two thirds of the explained heterogeneity of the target leverage, and around one third of the speed of adjustment towards the optimal capital structure. Overall, our results suggest that market timing and pecking order arguments prevail in the short run, while a dynamic trade-off mechanism with costly readjustment matters mainly in the long run.

Colombo, L. V. A., Botta, M., Non-Linear Capital Structure Dynamics, <<JOURNAL OF BUSINESS FINANCE & ACCOUNTING>>, 2022; 2022 (9-10): 1897-1928. [doi:10.1111/jbfa.12596] [https://hdl.handle.net/10807/203146]

Non-Linear Capital Structure Dynamics

Colombo, Luca Vittorio Angelo
Secondo
;
Botta, Marco
Primo
2022

Abstract

We investigate the capital structure and the dynamic behaviour of firms’ debt ratios in a large sample of companies from 52 countries. Our findings support a complex view of capital structure decisions,with firm, macroeconomic and institutional factors interacting in the determination of both the optimal leverage and the adjustment process towards it. This results in a complex non-linear dynamic behaviour of firms’ debt-to-equity ratios. These interactions contribute for almost two thirds of the explained heterogeneity of the target leverage, and around one third of the speed of adjustment towards the optimal capital structure. Overall, our results suggest that market timing and pecking order arguments prevail in the short run, while a dynamic trade-off mechanism with costly readjustment matters mainly in the long run.
2022
Inglese
Colombo, L. V. A., Botta, M., Non-Linear Capital Structure Dynamics, <<JOURNAL OF BUSINESS FINANCE & ACCOUNTING>>, 2022; 2022 (9-10): 1897-1928. [doi:10.1111/jbfa.12596] [https://hdl.handle.net/10807/203146]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10807/203146
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