Speed of Adjustment and Financial Constraints: Evidence from the UK

Hafezali Iqbal Hussain; Mohd Farid Shamsudin; Noor H Jabarullah; MiladAbdelnabiSalem  and Fekri Ali Shawtari

doi:10.17485/ijst/2016/v9i38/99279

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Speed of Adjustment and Financial Constraints: Evidence from the UK

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Indian Journal of Science and Technology

DOI: 10.17485/ijst/2016/v9i38/99279

Year: 2016, Volume: 9, Issue: 38, Pages: 1-6

Original Article

Speed of Adjustment and Financial Constraints: Evidence from the UK

Hafezali Iqbal Hussain^1*, Mohd Farid Shamsudin¹ , Noor H Jabarullah² , MiladAbdelnabiSalem³ and Fekri Ali Shawtari¹

¹ Universiti Kuala Lumpur Business School, Malaysia; [email protected]
² ICOLE –Univerisiti Kuala Lumpur – British Malaysia Institute, Malaysia
³ Ahmed Bin Mohammed Military College, Qatar
*Author for correspondence
Hafezali Iqbal Hussain
Universiti Kuala Lumpur Business School
Email: [email protected]

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

Abstract

Our paper estimates the speed of moment adjustment based on the first difference of the lead (t+1) leverage levels (actual lead) and lag (t-1) leverage levels (actual lag) to the first difference of simulated lead (target) leverage levels and lag levels (actual lag leverage) for firm level data. We introduce an intrinsic limitation (financial constraints) to the model to test the impact on speed of adjustment and distance reduction. We find that financial constraints have a statistically and economically significant impact on rate of adjustment and distance reduction to target leverage levels.
Keywords: Capital Structure, Financial Constraints, Financial Econometrics, Speed of Adjustment, UK Firms