Capital Structure Dynamics with Interrelated Adjustment: Australian Evidence

The paper examines the dynamics of financial structure decisions through the specification and estimation of a dynamic model of capital structure choice. Using a multivariate adjustment model and pooled annual time series/crosssectional data for 164 publicly listed Australian firms over the 1967–1985 period, we find evidence of interrelated adjustment, interdependence in investment and financing decisions, and very slow adjustment to the desired capital structure. The model also sheds light on the long-run determinants of capital structure of Australian firms, including their debt maturity choice.