The impact of firm characteristics on speed of adjustment to target leverage: a UK study

J. Fitzgerald, J. Ryan

Research output: Contribution to journalArticlepeer-review

Abstract

Responding to the need to investigate heterogeneity in the speed of adjustment (SOA) to target leverage in a manner that reflects the fractional nature of leverage, we estimate SOA across sub-samples of UK firms using the Dynamic Panel Fractional (DPF) estimator. Using firm characteristics to identify firms subject to varying costs of deviation from and adjustment to target leverage, we find significant evidence of heterogeneity in the speeds at which UK firms adjust to target leverage. Our results show that small, high growth and low dividend paying firms adjust to target leverage faster than their large, low growth and high dividend paying counterparts. We also find some evidence to suggest openly held firms adjust faster than closely held firms, though our results are not robust to the categorizing criterion employed or target leverage specification.

Original languageEnglish
Pages (from-to)315-327
Number of pages13
JournalApplied Economics
Volume51
Issue number3
DOIs
Publication statusPublished - 14 Jan 2019

Keywords

  • dynamic panel fractional estimator
  • heterogeneity
  • speed of adjustment
  • Target leverage

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