Title: An integrated model of capital structure to study the differences in the speed of adjustment to target corporate debt maturity among developed countries

Authors: Eleuterio Vallelado; Paolo Saona

Addresses: Research Group (GR144), University of Valladolid, 6 Valle de Esgueva Av., 47011, Valladolid, Spain. ' Business and Economics Department, Saint Louis University, Madrid Campus, 34 Del Valle Av., 28003, Madrid, Spain

Abstract: In this paper, we propose an integrated model of capital structure to study the partial adjustment process to the optimal long term debt ratio. In our analysis, we consider the characteristics of the institutional environment as a factor that influences such adjustment. We use a sample of quoted firms from Germany, Denmark, Spain, Italy, USA, Australia, Belgium, UK and France for the period 1996-2008. The key findings are that the firms follow optimal long-term debt ratios. Such optimal ratios are determined by firm characteristics identified in the trade-off, pecking order and market timing theories and by the country institutional environment. We observe that in those countries with lower cost of adjustment, essentially in those where banks are the main source of funds, firms can reach their target debt ratio in half the time needed by those countries with higher adjustment costs.

Keywords: capital structure; target debt maturity; institutional environment; panel data; integrated modelling; corporate debt maturity; long term debt ratio; optimal ratios; trade-off; pecking order; market timing; institutional environment; adjustment costs.

DOI: 10.1504/IJBAAF.2011.043703

International Journal of Banking, Accounting and Finance, 2011 Vol.3 No.4, pp.258 - 293

Available online: 11 Nov 2011 *

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