Capital Structure Theories and Speed of Capital Adjustment towards Target Capital Structure along Life Cycle Stages of Asian Manufacturing Firms

  • Muhammad Sajid Amin PhD Research Scholar, Faculty of Management Sciences, COMSATS University Islamabad, Pakistan
  • Hashim Khan Assistant Professor, Faculty of Management Sciences, COMSATS University Islamabad, Pakistan
  • Imran Abbas Jaddon Assistant Professor, Faculty of Management Sciences, COMSATS University Islamabad, Pakistan
  • Muhammad Tahir Assistant Professor, Faculty of Management Sciences, COMSATS University Islamabad, Pakistan
Keywords: Capital Structure Theories, Life Cycle Stages, Speed of Adjustment, Market Leverages

Abstract

Purpose: Firms have different costs and benefits and asymmetric information across their life cycle stages and hence each stage has different financial pattern and speed of adjustment towards target capital.

Methodology: We use System GMM to test the hypotheses. We use market leverages proxies for the capital structure, life cycle proxies: introduction, growth, mature, shakeout and decline and the control determinants of capital structure such as profitability, tangibility, firm size and growth opportunities. We estimate the financial pattern and speed of adjustment along life cycle stages of manufacturing firms from eleven Asian economies over the period of 2010-2018.

Findings: The results show that firms in earlier stages have more long term debt than mature stage. The speed of adjustment towards target capital structure is highest in mature stage than the other stages. The control determinants significantly affect market leverages.

Implications: The findings suggest that management has to consider life cycle stages of their firms in order to adjust capital structure. Stockholders should consider stage of firm with relation to profitability and capital structure for long term prospects.

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Published
2020-03-31
How to Cite
Muhammad Sajid Amin, Hashim Khan, Imran Abbas Jaddon, & Muhammad Tahir. (2020). Capital Structure Theories and Speed of Capital Adjustment towards Target Capital Structure along Life Cycle Stages of Asian Manufacturing Firms. Journal of Accounting and Finance in Emerging Economies, 6(1), 53-62. https://doi.org/10.26710/jafee.v6i1.1048