Speed of Adjustment of Capital Structure in Emerging Markets

Abstract

Speed of Adjustment (SOA) is a concept well studied in the area of capital structure. The concept is premised upon the fact that firms have a target capital structure for the next year and strive to achieve this target; the rate at which it attempts to achieve this target is called SOA. The SOA concept has been successfully applied to evaluate the financing decisions of firms. But most, if not all, of the existing studies in the literature are from the US or the developed world context, which cannot be generalized to emerging markets. This paper is an attempt to highlight the importance of studying the SOA of financing decisions in an emerging market context which provides for a completely different institutional setup. Studies in the direction given by this paper would provide evidence to policy makers and managers to review their existing organizational setup and take necessary action to increase their firm value.