Dynamic Capital Structure and Factors Influencing the Speed of Adjustment of UK Firms

Hafezali Iqbal Hussain; Mohd Farid Shamsudin  and Noor H  Jabarullah

doi:10.17485/ijst/2016/v9i42/97812

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Dynamic Capital Structure and Factors Influencing the Speed of Adjustment of UK Firms

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Indian Journal of Science and Technology

DOI: 10.17485/ijst/2016/v9i42/97812

Year: 2016, Volume: 9, Issue: 42, Pages: 1-6

Original Article

Dynamic Capital Structure and Factors Influencing the Speed of Adjustment of UK Firms

Hafezali Iqbal Hussain^1*, Mohd Farid Shamsudin¹ and Noor H. Jabarullah²

¹Universiti Kuala Lumpur Business School, Malaysia; [email protected] ²ICOLE –Univerisiti Kuala Lumpur – British Malaysia Institute, Malaysia

*Author for correspondence
Hafezali Iqbal Hussain
Universiti Kuala Lumpur Business School, Malaysia; [email protected]

This work is licensed under a Creative Commons Attribution 4.0 International License.

Abstract

Objectives: This paper estimates firms’ speed of adjustment by measuring the difference between simulated debt levels (target) and actual leverage (observed) levels to the difference between real leverage levels and lag levels based on the unit of observation (firm level) data. We test the impact of endogenous and exogenous factors to speed of adjustment. We find that the interaction of types of factors is statistically significant which would invite a rethink on the current understanding of capital structure decisions.

Keywords: Capital Structure, Speed of Adjustment, System GMM, UK Firms