Factors Affecting Speed of Adjustment to Target Leverage: Malaysia Evidence

Razali Haron, Khairunisah Ibrahim, Fauzias Mat Nor, Izani Ibrahim

    Research output: Contribution to journalArticle

    16 Citations (Scopus)

    Abstract

    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.

    Original languageEnglish
    Pages (from-to)243-262
    Number of pages20
    JournalGlobal Business Review
    Volume14
    Issue number2
    DOIs
    Publication statusPublished - Jun 2013

    Fingerprint

    Speed of adjustment
    Factors
    Leverage
    Malaysia
    Capital structure
    Generalized method of moments
    Firm-specific factors
    Firm size
    Finance
    Trade-off theory
    Partial adjustment model
    Panel data
    Firm profitability

    Keywords

    • dynamic trade-off theory
    • GMM
    • speed of adjustment
    • Target capital structure

    ASJC Scopus subject areas

    • Business and International Management

    Cite this

    Factors Affecting Speed of Adjustment to Target Leverage : Malaysia Evidence. / Haron, Razali; Ibrahim, Khairunisah; Nor, Fauzias Mat; Ibrahim, Izani.

    In: Global Business Review, Vol. 14, No. 2, 06.2013, p. 243-262.

    Research output: Contribution to journalArticle

    Haron, Razali ; Ibrahim, Khairunisah ; Nor, Fauzias Mat ; Ibrahim, Izani. / Factors Affecting Speed of Adjustment to Target Leverage : Malaysia Evidence. In: Global Business Review. 2013 ; Vol. 14, No. 2. pp. 243-262.
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