How capital structure adjusts dynamically during financial crises

Mohamed Ariff · Taufiq Hassan · Shamsher Mohamad

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Corporate Finance and Governance Corporate Insolvency and Governance Financial Distress and Bankruptcy Prediction

Abstract

The availability of a unique data set of financially distressed firms enabled this study to apply the dynamic capital structure adjustment model to a study of capital structure. In addition, the factors driving capital structure adjustment of financially distressed and of healthy firms were estimated. The results identified 13 significant variables, which included many macroeconomic variables previously not studied, thus evidence is produced of the impact of macroeconomic factors on capital structure for the first time. We also estimated the adjustment parameters using a new dynamic adjustment model applied to an unbalanced panel data set of distressed and healthy firms. It is found that the adjustment parameters are different in the short term and long term. These new findings add to the capital structure literature.

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References

2001Econometric Analysis of Cross Section and Panel Data 1984Corporate financing and investment decisions when firms have information that investors do not have 1958The Cost of Capital, Corporation Finance and the Theory of Investment 1977Determinants of corporate borrowing 1981Credit Rationing in Markets with Imperfect Information 1986Large Shareholders and Corporate Control 2003Analysis of Panel Data 1984The Capital Structure Puzzle

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