Firms’ speed of adjustment and rational financing behaviour: Malaysian evidence
Malaysian firms which are examined based on a dynamic framework appear to practice target capital structure and take into account certain firm characteristics in their capital structure decisions. These firms readjust instantaneously when they are off the target indicating low adjustment cost wh...
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| Format: | Article |
| Language: | English |
| Published: |
2014 Inderscience Enterprises Ltd. , UK
2014
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| Online Access: | http://irep.iium.edu.my/32530/ http://irep.iium.edu.my/32530/ http://irep.iium.edu.my/32530/4/JGBA_7%25282%2529_Paper_5_live.pdf |
| Summary: | Malaysian firms which are examined based on a dynamic framework
appear to practice target capital structure and take into account certain firm
characteristics in their capital structure decisions. These firms readjust
instantaneously when they are off the target indicating low adjustment cost
while the pecking order hypothesis seems to influence the financing decisions.
Found to be over-levered most firms behave rationally by cutting down the
amount of debt in their capital structure to reach the target. In terms of the
proximity to the target, under-levered firms are found to be much closer to
target than over-levered firms. This study contributes to the literature by
identifying the rational financing behaviour and the proximity of Malaysian
firms to target leverage. This indication of firms’ proximity to target can help
managers to outline and set the next steps to be taken in order to reach the
target capital structure to maximise firm value. |
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