Search results

This paper seeks to analyze the family firm's capital structure decisions, focusing on the speed of adjustment (SOA) as well as on the effect of distance from the target capital structure on the SOA towards target short-term and long-term debt ratios in unlisted small and medium-sized family firms.

Methodologically, we use dynamic panel data estimators to estimate the effects of distance on the speeds of adjustment towards those targets. Data for the period 2006–2014 were collected for two research sub-samples: one sub-sample with 398 family firms; the other sub-sample contains 217 non-family firms.

The results show that the deviation from the target debt ratios impacts negatively on the speeds of adjustment towards target short-term and long-term debt ratios in unlisted family firms. These results suggest that family firms, deviating from target debt ratios, face deviation costs, i.e. insolvency costs, inferior to the adjustment costs, i.e. transaction costs. Therefore, family firms stay away from the target debt ratios for a long time than do non-family firms.

The research sample comprises a low number of family firms, therefore for future research we suggest increasing the size of the sample of family firms to get a deeper understanding of family firms' SOA towards capital structure. Additionally, we suggest the analysis of other potential determinants of the speed of adjustment towards target capital structure.

The results obtained suggest that the distance from the target short-term and long-term debt ratios can be avoided if these firms do not depend almost exclusively on internal finance to adjust towards target capital structure. Moreover, for policymakers, we suggest the creation/promotion of alternative external finance sources, allowing reduced transaction costs that contribute to a faster adjustment of small family firms towards target capital structure.

The most previous research focusing on capital structure decisions have focused on listed family firms. To fill this gap, this study examines the speed of adjustment towards target debt ratios in the context of unlisted family firms. Moreover, transaction costs are a function of debt maturity, therefore this study examines separately the speeds of adjustment towards target short-term and long-term debt ratios. This paper shows that the adjustment costs (i.e. transaction costs) could hold back family firms from rebalancing its capital structure.

The purpose of this paper is to analyse if capital structure decisions of small- and medium-sized Portuguese firms are in accordance with the predictions of dynamic trade-off theory, more precisely, the speed of adjustment of short-term debt (STD) and long-term debt (LTD) towards the respective target debt ratios.

Based on two samples of Portuguese firms, 1,377 small-sized firms and 811 medium-sized firms, dynamic estimators were used for the treatment of data obtained from the Amadeus database for the period 2007-2011.

The results indicate that small- and medium-sized firms adjust their STD and LTD ratios towards the respective target ratios. Small- and medium-sized firms present a high-speed adjustment towards the target STD ratio, suggesting that both types of firm face costs of deviating from the target capital structure, which are, probably, greater than the costs of adjustment associated with STD. However, considering the distance from the target ratio as a determinant of the adjustment speed, the results show the predominance of the negative effect of the costs of adjustment on capital structure adjustment speeds.

The results obtained for the speed of adjustment of STD and LTD, in a recession context, show that for small firms and medium-sized firms, mainly for the former, the costs of external market transactions are prohibitively high, slowing the speed of adjustment towards the target capital structure.

On the basis of labor economics theories, this study examines how adjustment in human capital accounts for labor cost stickiness.

This study makes use of employee education level as a measure of the quality of human capital and relies on data from Chinese public firms to conduct the empirical test. This study focuses on two important components of labor cost changes: one corresponding to the adjustment in the number of employees (capacity adjustment) and another corresponding to the adjustment in the mix of employee education levels (quality adjustment).

This study reveals that labor cost changes driven by the adjustment of employee education level are sticky. This stickiness cannot be explained by the standard adjustment cost theory. This further shows that firms that actively adjust their employee quality during downturns experience improved future performance. The findings are robust to alternative measures and specifications.

This study provides new evidence for and insights into the cost behavior literature. Previous studies treat input resources in a homogenous way and focus on the effect of capacity adjustment. This study considers the heterogeneity of resources and examines three dimensions of salary cost adjustment: capacity, structure, and unit cost. In line with the economic theory of sticky costs proposed by Banker et al. (2013a), the study’s evidence sheds light on the additional underlying economic mechanisms driving cost stickiness behavior. Specifically, managers asymmetrically adjust both employee structure and average salaries, in addition to employee number. This study also adds to the existing knowledge of the consequences of managers' actions regarding cost behavior.

The purpose of this paper is to study the dynamics of capital structure in the context of Indian manufacturing companies in a partial‐adjustment framework during the period 1993‐1994 to 2007‐2008.

This paper specifies a partial‐adjustment model and uses the generalized method of moments technique to determine the variables which affect the target capital structure and to find out the factors affecting the adjustment speed to target capital structure.

Firm‐specific variables like size, tangibility, profitability and market‐to‐book ratio were found to be the most important variables which determine the target capital structure across the book and market leverage and the factors like size of the company, growth opportunity and the distance between the target and observed leverage determine the speed of adjustment to target leverage for the Indian manufacturing companies.

The behavioural variables like managers' confidence and attitude towards raising the external finance have not been incorporated in the model to determine the target capital structure due to the data constraint.

This paper has implications for corporate managers in India, for example, to consider the various adjustment costs while altering the financing decisions of the company with other variables like flexibility of the manager, direct cost of debt and equity.

This paper is first of its kind to study both the determination of target capital structure and the speed of adjustment to target capital structure in the context of Indian companies.

Has the character of adjustment of labor input in the US manufacturing sector been changing over the last few decades? This question is addressed with time‐series estimation using data through 2001. Impulse responses of employment and average weekly hours to a given shock in output demand are generated from multi‐equation vector autoregressions. The results reveal a marked change in the character of labor input adjustment as compared with the two decades prior to 1979, with some heterogeneity among 18 detailed industries. Adjustment of hours has risen somewhat while adjustment of employment has dropped considerably. This intensifying adjustment of hours vis‐à‐vis employment is consistent with hypotheses regarding employers' potential reactions to a skill‐upgrading of jobs under greater market pressures to restrain cost. US manufacturing employers appear to be increasingly adopting strategies of “lean staffing,” while “hoarding” and shedding work hours, in response to cyclical fluctuation in demand. This phenomenon may be a structural change contributing to a recent “jobless recovery” in the US.

The purpose of this paper is to examine the role of institutional, macroeconomic, industry, and firm characteristics on the adjustment speed of corporate capital structure within the context of developing countries.

The authors considers a sample of 986 firms drawn from nine developing countries in Africa over a period of ten years (1999-2008). The study develops dynamic partial adjustment models that link capital structure adjustment speed and institutional, macroeconomic, and firm characteristics. The analysis is carried out using system Generalized Method of Moments procedure which is robust to data heterogeneity and endogeneity problems.

The paper finds that firms in developing countries do temporarily deviate from (and partially adjust to) their target capital structures. Our results also indicate that: more profitable firms tend to rapidly adjust their capital structures than less profitable firms; the effects of firm size, growth opportunities, and the gap between observed and target leverage ratios on adjustment speed are functions of how one measures capital structure; and adjustment speed tends to be faster for firms in industries that have relatively higher risk and countries with common law tradition, less developed stock markets, lower income, and weaker creditor rights protection.

Future research should focus on examination of the adjustment speed of debt maturity structure. Identification of industry-specific characteristics that affect the pace with which firms adjust their capital structure to the optimum is another possible avenue for future research.

Our findings have practical implications for corporate managers, governments, legislators, and policymakers.

The study focuses on firms in developing countries for which the literature on adjustment speed of capital structure is virtually non-existent. Furthermore, unlike previous works on capital structure, it explicitly models industry variable as one of the determinants of adjustment speed. Therefore, it contributes to the literature on capital structure and adjustment speed in general and to the literature on developing countries in particular.

The purpose of this paper is to investigate how the timing behavior and the adjustment toward the target of capital structure interact with each other in the capital structure decisions. Past literature finds that both timing and targeting are significant in determining the leverage ratio which is inconsistent with any standalone framework. This study argues that the preference of the firm for timing behavior or targeting behavior depends on the cost of deviation from the target. Since the cost of deviation from the target is likely to be asymmetric between overleveraged and underleveraged firms, the direction of the deviation from the target leverage is expected to alter the preference toward timing or targeting in the capital structure decision.

This study used the GMM system estimators with the Malaysian data for the period of 1992-2009 to fit a standard partial adjustment model and to estimate the speed of adjustment (SOA) of capital structure.

This study finds that Malaysian firms, on average, adjust their leverage at a slow speed of 12.7 percent annually and this rate increased to 14.2 percent when the timing variable is accounted for. Moreover, the SOA is found to be significantly higher and the timing role is lower for overleveraged firms compared with underleveraged firms. Overleveraged firms seem to find less flexibility to time the market as more pressure is exerted on them to return to the target regardless the timing opportunities because of the higher costs of deviation from the target leverage. Underleveraged firms place lower priority to rebalance toward the target compared with overleveraged firms as the costs of being underleveraged are lower and hence, these firms have more flexibility to time the market.

The findings of this study support that firms consider both targeting and timing in their financing decisions. No standalone theory can interpret the full spectrum of empirical results. The empirical work is based on partial adjustment model of leverage; however, this model has been criticized by inability to distinguish between active adjustment behavior and mechanical mean reversion. This is an avenue for future research.

This study investigates if targeting and timing behaviors are mutually exclusive as theoretically expected or they can coexist. A theoretical explanation and an empirical investigation support the conclusion that firms consider both targeting and timing in their financing decisions. This study provides evidence from Malaysian firms that are characterized by concentrated ownership structure and separation of cash flow rights and control rights of the firm due to pyramid ownership structure. Therefore, it provides evidence on how environmental characteristics may affect the capital structure determinants of the firm.

The purpose of this paper is to test the validity of dynamic tradeoff theory and argue that the speed of adjustment toward the target capital structure may vary depending primarily on some inherent firm characteristics.

The objective of this article is to study the impact of the corporate governance arrangements on the capital structure behavior taken by listed French firms. The author measures the corporate governance arrangements in three different ways to capture its influences on the capital structure and analyze how it affects a firm's rebalancing behavior in the presence of relevant control variables. Assuming that costs related to deviations from the target leverage are positively correlated with the duration of the deviation, the author finds that firms with a strong governance system adjust at a faster rate because the longer the deviation lasts, the greater the loss in firm value. In addition, firms with more efficient governance structures face lower adjustment costs.

The author measures corporate governance quality in different ways by using several proxies. The results make a major contribution to the literature and show that the quality of the governance system is an important factor in helping the company achieve fatly its target leverage. The authors produces further support for the initial finding by showing that the two extreme leverage deviation groups are dominated by firms with weak governance. The author also shows that the rebalancing speed is faster for firms with strong governance systems.

The paper proposes that a firm characterized by a strong governance system will display a shorter-duration deviation from the target capital structure and a higher adjustment level than a firm with weak governance. In other words, the author argues that the deviation from the target capital structure and the adjustment level are related to the quality of corporate governance. The results indicate that firms with a stronger governance structure are characterized by shorter-term deviations from the target. The author also finds that firms belonging to the two subsamples where leverage deviation is at extremely high or low levels are characterized by a weak governance system. The results corroborate the hypothesis on the speed of adjustment toward the desired target leverage. Furthermore, the author empirically proves that the adjustment level of firms with stronger governance is higher in both extreme leverage situations. This paper extends the existing literature on capital structure adjustment by introducing the effect of corporate governance.