Original scientific paper
https://doi.org/10.1080/1331677X.2020.1860792
Adjustment speed towards target capital structure and its determinants
Pervaiz Ahmed Memon
Rohani Md-Rus
Zahiruddin B. Ghazali
Abstract
This study examines the existence of the dynamism of capital
structure in Pakistan for the period from 2003 to 2012, with specific objectives of estimating the adjustment speed and determining the factors affecting the adjustment speed towards target
capital structure. Using difference Generalized Method of
Moments (GMM) as the estimation technique, the study confirms
the existence of optimal capital structure for Pakistani non-financial listed firms, and concludes that, depending upon the proxy of
target debt used, firms make full adjustment towards optimal
capital structure in 1.45 years to 2.25 years. Firms’ size, profitability,
stock market development, and GDP are found to be relatively
consistent determinants of the adjustment speed across different
proxies of debt. This study contributes in the existing literature of
the capital structure by providing evidence regarding the existence of target capital structure, estimating the adjustment speed
towards target capital structure, and identifies factors affecting
adjustment speed towards target capital structure for Pakistan
using four different measures of leverage.
Keywords
Dynamic capital structure; partial adjustment model; speed of adjustment; generalized method of moments
Hrčak ID:
301268
URI
Publication date:
31.12.2021.
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