Speed of Adjustment and Financial Constraints: Evidence from the UK

Iqbal Hussain, Hafezali and Mohd Farid, Shamsudin and Noor H, Jabarullah and Milad Abdelnabi, Salem and Fekri Ali, Shawtari (2016): Speed of Adjustment and Financial Constraints: Evidence from the UK. Published in: Indian Journal of Science and Technology , Vol. 9, No. 38 (October 2016): pp. 1-6.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Capital Structure, Financial Constraints, Financial Econometrics, Speed of Adjustment, UK Firms
• Subjects: G - Financial Economics > G3 - Corporate Finance and Governance; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill

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