Business, Management and Accounting
3 years ago

Firms in market-based economies adjust leverage faster after shocks.

SSRN Electronic Journal
International Evidence on the Heterogeneity of Capital Structure Adjustment Speeds
Wolfgang Drobetz, Dirk Schilling, Henning Schröder

Paper Summary

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The study looked at how companies adjust their debt levels after financial shocks. They found that firms in countries with stock markets adjust faster than those in countries with bank-based systems. Companies that are heavily in debt, have a financing shortfall, or face financial constraints adjust their debt levels more quickly. During tough economic times, companies take longer to adjust their debt.