A note on capital structure target adjustment - Indonesian evidence

Reinhard, L and Li, S 2010, 'A note on capital structure target adjustment - Indonesian evidence', International Journal of Managerial Finance, vol. 6, no. 3, pp. 245-259.


Document type: Journal Article
Collection: Journal Articles

Title A note on capital structure target adjustment - Indonesian evidence
Author(s) Reinhard, L
Li, S
Year 2010
Journal name International Journal of Managerial Finance
Volume number 6
Issue number 3
Start page 245
End page 259
Total pages 15
Publisher Emerald Group Publishing Ltd.
Abstract Purpose: The purpose of this paper is to investigate whether existing capital structure target adjustment models are able to identify whether companies adjust their capital structures towards an (unobservable) target. Design/methodology/approach: Existing capital structure target adjustment models are applied to a specific dataset by using different regression techniques (ordinary least square, fixed effect, Fama-MacBeth, least square dummy variable "corrected", SYS-GMM). Findings: Existing capital structure target adjustment models are not able to identify whether companies adjust their capital structures towards a target or not. They might indeed indicate target adjustment behaviour when companies' capital structures actually move away from their targets. Research limitations/implications: As target adjustment behaviour is often used as support for the trade-off and against the pecking order theory, the "horse race" between both theories seems still to be open. Originality/value: This paper highlights some of the fallacies of existing capital structure target adjustment models and demonstrates that the results obtained by those models can be highly misleading.
Subject Finance
Keyword(s) Capital structure
Indonesia
Targets
DOI - identifier 10.1108/17439131011056242
Copyright notice © Emerald Group Publishing Limited
ISSN 17439132
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