The Speed of Adjustment towards Target Capital Structure - A Meta-Regression Analysis

This study aggregates prior research on the speed of adjustment (SOA) towards target capital structure, which is characterized by its heterogeneous findings. Therefore, the statistical procedures of meta-regression analysis are applied for the first time in this line of research. Summarizing 1,089 reported results manually collected from 70 existing primary studies, we find a statistically significant mean speed of adjustment of 31,3 %, which speaks for the existence of a target capital structure. Furthermore, we reveal that the choice of leverage measure, sample of firms, estimation model, and control variables affect the estimated speed of adjustment on the study level. Moreover, we identify several cross-country effects to be responsible for the large between-study variation of reported effect estimates. These results are highly relevant for corporate and political decision-makers.