Target Leverage and Capital Structure Adjustment Rates for Various Industries in Germany (Paperback)

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Research Papers Theme Economics from 2010 - Finance, Level: 1.3, University of Regensburg, Language: English, Abstract: Since Modigliani/Miller's famous theorem (1958) considers capital The structure has nothing to do with the company's valuation. Capital structure selection has always been one of the most important topics in modern financial theory. Subsequent theoretical literature found evidence of negative indifference theorems. Most empirical studies apply a static framework and can explain the difference in the optimal leverage ratios between different companies, and use the observed leverage ratio as the proxy for optimal target leverage, but cannot explain what the company's leverage ratio itself observes. difference. One widely accepted reason for the company's deviation from the target leverage ratio is the existence of adjustment costs. In the presence of adjustment costs, even if the company realizes that its current capital structure is not optimal, it may adjust its leverage ratio frequently or comprehensively over a period of time, but may deviate from its target leverage ratio and find that it is not cost-effective. . This shows that there is a need to develop and use dynamic methods to test the capital structure of the company. The structure of this article is as follows. The second section briefly outlines the three main theories of capital structure. Section 3 specifies a dynamic partial adjustment model and describes variables that may affect the target capital structure and the speed of adjustment. Part 4 reports the empirical results and Part 5 concludes the paper

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