Factors Affecting Speed of Adjustment to Target Leverage: Malaysia Evidence
This study focuses on the dynamic aspect of capital structure which is a relatively new area in the finance literature. By employing panel data, 790 of non-financial listed firms in Malaysia are examined for the period 2000–2009. Conducted using the dynamic Partial Adjustment Model and estimated b...
| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
| Published: |
Sage
2013
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| Subjects: | |
| Online Access: | http://irep.iium.edu.my/30003/ http://irep.iium.edu.my/30003/ http://irep.iium.edu.my/30003/ http://irep.iium.edu.my/30003/1/04_GBR~14_2_Razali_Haron_P3.pdf |
| Summary: | This study focuses on the dynamic aspect of capital structure which is a relatively new area in the
finance literature. By employing panel data, 790 of non-financial listed firms in Malaysia are examined
for the period 2000–2009. Conducted using the dynamic Partial Adjustment Model and estimated based
on the Generalized Method of Moment, this study investigates the existence of target capital structure,
speed of adjustment and factors affecting speed of adjustment. There are evidences of target capital
structure and firms do adjust to be at their target from time to time with a considerably rapid speed
of adjustment, in line with dynamic trade-off theory. Firms in Malaysia are found to be under-adjusted,
being below the required adjustment to be at the target within a year. Study on factors affecting speed
of adjustment is a new contribution to the literature as no work has been done regarding this issue in
Malaysia. This study also analyzes firm-specific factors affecting speed of adjustment. There is strong evidence
on the negative relationship between the speed of adjustment and distance from target leverage
suggesting fast adjustment if not being far from target. Firm size and profitability significantly influence
speed of adjustment for firms in Malaysia. |
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