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Adjustment speed of capital structure: A literature survey of empirical research

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  • Ha Thanh Nguyen
  • Balachandran Muniandy
  • Darren Henry

Abstract

We synthesize empirical studies on the determinants of the heterogeneity in the adjustment speed (speed of adjustment; SOA) of capital structure. These determinants are categorized into six groups, namely, (1) firm-specific characteristics, (2) financial reporting and managerial incentives, (3) corporate governance, (4) informal institutions, (5) financial market attributes and (6) economy-wide attributes. From this analysis, we perceive important potential research questions linked to identifying channels associated with the costs and frictions explaining SOA heterogeneity, including financial reporting quality aspects, firm internal and external monitoring mechanisms and institutional and cultural elements. Interesting avenues for future research also include considering SOA dynamics for comparable cross-country samples and the investigation of the subsequent consequences of capital structure adjustments. JEL Classification: G30, G32, G34, M41

Suggested Citation

  • Ha Thanh Nguyen & Balachandran Muniandy & Darren Henry, 2024. "Adjustment speed of capital structure: A literature survey of empirical research," Australian Journal of Management, Australian School of Business, vol. 49(3), pages 448-477, August.
    • Handle: RePEc:sae:ausman:v:49:y:2024:i:3:p:448-477
    DOI: 10.1177/03128962231154744
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    Keywords

    Capital structure dynamics; corporate governance; financial markets; financial reporting; informal institutions; speed of leverage adjustment;
    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
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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