Optimal Capital Structure and Speed of Adjustment: Inside Debt Perspective

2016 ◽  
Author(s):  
Hsien-Hsing Liao ◽  
Tsung-Kang Chen ◽  
Yi-Han Chang
Keyword(s):  
Capital Structure ◽  
Inside Debt ◽  
Speed Of Adjustment ◽  
Optimal Capital Structure ◽  
Optimal Capital

scholarly journals Analysis of Determinants of the Speed of Adjustment to Target Capital Structure of Companies in Developing Economies

2020 ◽  
Vol 13 (3) ◽  
pp. 111-136
Author(s):  
Eugene Nivorozhkin ◽  
Eugeniu Kireu
Keyword(s):  
Capital Structure ◽  
Financial Stability ◽  
Developing Economies ◽  
Influential Factors ◽  
Optimum Level ◽  
Speed Of Adjustment ◽  
Optimal Capital Structure ◽  
Market Values ◽  
Study Results ◽  
Optimal Capital

The financial stability of a company, along with its operational effectiveness, depend on whether the company endeavours to optimise its capital structure, and the speed at which it can do so. The purpose of this article is to assess the relative impact of influential factors on the speed of adjustment to the optimal capital structure of companies in emerging markets. The relevant factors in question include corporate determinants, macroeconomic determinants, the specific financial characteristics of BRICS companies, and other pertinent external macroeconomic conditions. To achieve this, we conducted a comparative study of various assessment methodologies and examined their findings. Within the scope of the overall study aims, we considered various models of assessing the speed of adjustment and identified those study methods most frequently used. We identified the determinants of optimal capital structure and the related speeds of adjustment, and suggested hypotheses based on assumed assessment results. We then proceeded to analyse the sustainability of those results and gauge the overall robustness of our approach. The study results reveal that the speed of adjustment to target capital structure in developing economies is significantly higher than in advanced economies. The results indicate that these speeds vary in the range of 31–46% for book values of financial leverage and 60–79% for its market values. An empirical analysis of these results also showed that companies with a less-than-optimal debt level achieved the optimum level much quicker, and the speed of adjustment thereby depends heavily on the absolute value of the company money flow. Moreover, this is especially true in those companies with an excessive leverage value. Financial instability in the markets, meanwhile, had a positive effect upon the speed of adjustment for Chinese and Brazilian companies, while in the other BRICS countries the change of the speed of adjustment in the period of crisis finds no confirmation.

Optimal Capital Structure and Speed of Adjustment under Hyperinflation and Dollarization

2020 ◽  
Vol 12 (2) ◽  
pp. 158-177
Author(s):  
Strike Mbulawa ◽  
Nathan F. Okurut ◽  
Mogale Ntsosa ◽  
Narain Sinha
Keyword(s):  
Capital Structure ◽  
Optimal Level ◽  
Macroeconomic Factors ◽  
Speed Of Adjustment ◽  
Optimal Capital Structure ◽  
Theoretical Predictions ◽  
Adjustment Factors ◽  
Optimal Capital ◽  
Reducing Costs ◽  
Optimal Leverage

Economic challenges in Zimbabwe have resulted in firms being pushed out of their optimal leverage. Firms are faced with the need to move back to the optimal level of financing to improve their value. They tend to adjust quickly to the optimal level whenever failing to do so is costlier. This study employs a dynamic capital structure model to examine the determinants of optimal leverage and the speed of adjustment under a hyperinflation and dollarization period (2000–2016). The study shows that firms have an optimal leverage and there are costs of adjusting to this level of capital. Findings are consistent with theoretical predictions of the static trade-off theory (STT) and agency theory. The adjustment factors for all the models were found to be at least 0.475 and are higher under hyperinflation than under dollarization. Both firm and macroeconomic factors explain the optimal capital structure while the former also explains the speed of adjustment. Policies focusing on improving access to and reducing costs for finance will assist firms to maximize value as they adjust to the desired financing mix. The policies adopted may vary in response to the economic environment.

scholarly journals SPEED OF ADJUSTMENT PADA STRUKTUR MODAL: ANALISIS BERDASARKAN SIKLUS HIDUP PERUSAHAAN DI INDONESIA

2020 ◽  
Vol 22 (1) ◽  
pp. 121-128
Author(s):  
CICILIA SUSILAWATI ◽  
ROSALINA WIJAYANTI ◽  
CYRILLIUS MARTONO
Keyword(s):  
Life Cycle ◽  
Capital Structure ◽  
Growth Stage ◽  
Manufacturing Companies ◽  
Speed Of Adjustment ◽  
Optimal Capital Structure ◽  
Optimal Capital ◽  
The Difference

At each stage of the life cycle, companies use different considerations to determine capital structure decisions. This study analyzes differences in company speed of adjustment towards optimal capital structure, based on the company's life cycle in Indonesia. The sample used 74 manufacturing companies from 2013 to 2017. The result is that the maturity company has a greater speed of adjustment than the introduction stage company. While the speed of adjustment at the growth stage there is no difference with the speed of adjustment at the introduction stage. Other findings in this study, the distance between the optimal capital structure and the realized capital structure reduces the difference in speed of adjustment at the maturity and introduction stages. So the conclusion is the company's life cycle becomes a determinant of capital structure decisions  

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