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Momentum Market States And Capital Structure Adjustment Speed

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  • An-Sing Chen
  • Che-Ming Yang

Abstract

It is well established in the momentum literature that market states affect momentum profit. Moreover, the market state variables employed in the momentum literature are distinctive in that they are constructed to be ex-ante observable by the investor. This study shows that these momentum market state variables also significantly affect a company’s capital structure adjustment speed. Our results provide a plausible explanation of how the momentum market state variables lead to momentum profit by affecting the capital structure. Additional findings show that low leveraged firms adjust their leverage toward target capital structure faster than high leveraged firms. We also show that producer linked variables such as total industry capacity utilization and producer price index significantly affect capital structure adjustment speeds, more so than standard macroeconomic variables

Suggested Citation

  • An-Sing Chen & Che-Ming Yang, 2020. "Momentum Market States And Capital Structure Adjustment Speed," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 14(2), pages 37-49.
  • Handle: RePEc:ibf:ijbfre:v:14:y:2020:i:2:p:37-49
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    Cited by:

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    More about this item

    Keywords

    Momentum; Market State Indicators; Dynamic Capital Structure; Speed of Adjustment; Macroeconomic Conditions; Industry Capacity Utilization; Producer Price Index;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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