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Evolution of capital structure in east Asia—corporate inertia or endeavours?

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The paper examines the capital structure adjustment dynamics of listed non-financial corporations in seven east Asian countries before, during and after the crisis of 1997–1998. Our methodology allows for speeds of adjustment to vary, not only among firms, but also over time, distinguishing between cases of sudden and smooth adjustment. Whereas, compared with firms in the least affected countries, average leverages were much higher, generalized method-of-moments analysis of the Worldscope panel data suggests that average speeds of adjustment were lower in the worst affected countries. This holds also for the severely financially distressed firms in some worst affected countries, though the trend reversed in the post-crisis period. These findings have important implications for the regulatory environment as well as access to market finance.
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Keywords: Capital structure dynamics; Financially distressed firms; Firm-time-specific adjustment speeds; Generalized methods of moments; Leverages; Partial adjustment models; Smooth and sudden adjustment

Document Type: Research Article

Affiliations: 1: Aston Business School, Birmingham, UK 2: Brunel University, Uxbridge, UK, and Institute for the Study of Labor, Bonn, Germany

Publication date: 01 January 2010

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