We develop a dynamic panel threshold model of capital structure to test the dynamic trade-off theory, allowing for asymmetries in firms' adjustments toward target leverage. Our novel estimation approach is able to consistently estimate heterogeneous speeds of adjustment in different regimes as...

This paper finds strong support for the argument that heterogeneous adjustment costs significantly affects the speed with which a firm approaches its target capital structure. We find that firms with higher non-debt tax shields (from R&D), and cash holdings adjust faster to their target capital...

This paper investigates how capital structure dynamics depend on “systematic” adjustment costs proxied by market imperfections and macroeconomic conditions in a cross-country setting. We document substantial variations in firms' capital structure adjustments across countries as well as over...

The literature on capital structure dynamics assumes that companies trade-off the advantages of a leverage adjustment and its costs. In general, private companies are assumed to face relatively large adjustment costs, and should have lower financing flexibility. However, we argue that an...