Asia-Pacific Journal of Business (아태비즈니스연구)

KNU The Institute of Management & Economy Research (강원대학교 경영경제연구소)
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Asymmetries in the Speed of Capital Structure Adjustment: Evidence from a Dynamic Panel Threshold Model

자본구조 조정속도의 비대칭성: 동태적 패널 임계 분석

  • Sungbin Cho (Department of Economics, Soongsil University)
  • Received : 2024.08.30
  • Accepted : 2024.09.25
  • Published : 2024.09.30
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Abstract

Purpose - This paper investigates the asymmetric capital structure adjustment toward target leverage. Our study consistently estimates heterogeneous speeds of adjustment in different regimes reflecting heterogeneity in firm characteristics. Design/methodology/approach - We collect balanced panel data on Korean listed firms over the period 2005 - 2023. In order to capture non-linearities in the speed of capital structure adjustments, this paper employs the dynamic panel threshold model that allows endogeneity in regressors and threshold variables. Findings - Using firm characteristics as proxies for adjustment costs of deviation from and adjustment to target leverage, we find asymmetric effects on the speed of capital structure adjustments. Firms of large size, with high profitability, with large cash flow and with large investment adjust capital structure faster than those with the opposite characteristics. On the other hand, firms with high growth opportunities and with high risk move slowly toward the target leverage. Research implications or Originality - This paper provides new evidence of cross-sectional asymmetries in capital structure adjustments, which calls for cautions in sample-splitting in an arbitrary manner.

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