Reconciling divergent findings on the speed of leverage adjustment
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Authors
Khoo, Joye
Durand, Robert B.
Harris, Mark N.
Date
2018Type
Conference Paper
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Khoo, J. and Durand, R.B. and Harris, M. 2018. Reconciling divergent findings on the speed of leverage adjustment. In: 2018 New Zealand Finance Meeting, 17th Dec 2018, Queenstown, New Zealand.
Source Conference
2018 New Zealand Finance Meeting
Faculty
Faculty of Business and Law
School
School of Economics, Finance and Property
Collection
Abstract
Estimates of firms’ speeds of leverage adjustment (SOAs) vary wildly. Studies producing these estimates impose a strong constraint: An average SOAis estimated for all firms in a sample. Using finite mixture models (FMM) we uncover four distinct types of behaviors characterizing SOAs. The four behaviors in this regard can be classified as: Nearly stable (SOA= 2%); slower adjusters(SOA= 28%);faster adjusters(SOA= 62%) and drifters (SOA= -3%) who slowly move away from estimated leverage targets.