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Capital Structure Theories and Speed of Capital Adjustment towards Target Capital Structure along Life Cycle Stages of Asian Manufacturing Firms

Author

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  • Muhammad Sajid Amin
  • Hashim Khan
  • Imran Abbas Jaddon
  • Muhammad Tahir

Abstract

Purpose: Firms have different costs and benefits and asymmetric information across their life cycle stages and hence each stage has different financial pattern and speed of adjustment towards target capital.Methodology: We use System GMM to test the hypotheses. We use market leverages proxies for the capital structure, life cycle proxies: introduction, growth, mature, shakeout and decline and the control determinants of capital structure such as profitability, tangibility, firm size and growth opportunities. We estimate the financial pattern and speed of adjustment along life cycle stages of manufacturing firms from eleven Asian economies over the period of 2010-2018.Findings: The results show that firms in earlier stages have more long term debt than mature stage. The speed of adjustment towards target capital structure is highest in mature stage than the other stages. The control determinants significantly affect market leverages.Implications: The findings suggest that management has to consider life cycle stages of their firms in order to adjust capital structure. Stockholders should consider stage of firm with relation to profitability and capital structure for long term prospects.

Suggested Citation

  • Muhammad Sajid Amin & Hashim Khan & Imran Abbas Jaddon & Muhammad Tahir, 2020. "Capital Structure Theories and Speed of Capital Adjustment towards Target Capital Structure along Life Cycle Stages of Asian Manufacturing Firms," Journal of Accounting and Finance in Emerging Economies, CSRC Publishing, Center for Sustainability Research and Consultancy Pakistan, vol. 6(1), pages 53-62, March.
    • Handle: RePEc:src:jafeec:v:6:y:2020:i:1:p:53-62
    DOI: http://doi.org/10.26710/jafee.v6i1.1048
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    Cited by:

    1. Yongrong Xin & Muhammad Sajid Amin & Hashim Khan & Jiyuan Zheng & Muhammad Umer Quddoos, 2023. "Unleashing the Moderating Influence of Firms’ Life Cycle Stages and National Income on Capital Structure Targeting Behavior: A Roadmap towards Sustainable Development," Sustainability, MDPI, vol. 15(4), pages 1-21, February.

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