Please use this identifier to cite or link to this item:
Appears in Collections:Accounting and Finance Journal Articles
Peer Review Status: Refereed
Title: Dynamic capital structure adjustment: US MNCs & DCs
Authors: McMillan, David
Camara, Omar
Contact Email:
Keywords: Adjustment speed factors
Capital structure rebalancing
Dynamic capital structure adjustment
MNCs vs. DCs
Panel analysis
Issue Date: Dec-2012
Publisher: Elsevier
Citation: McMillan D & Camara O (2012) Dynamic capital structure adjustment: US MNCs & DCs, Journal of Multinational Financial Management, 22 (5), pp. 278-301.
Abstract: This paper uses dynamic panel estimators to test whether there are differences in the speed of capital structure adjustment between US-based multinationals and domestic corporations, and why such differences may occur. Prior literature attributes the differences in leverage between MNCs and DCs to agency costs of debt financing and the theorized variance stabilization of overall cash flows from diversification. Related, specific speed factors of adjustment and the rebalancing of capital structure following an equity price shock are also investigated. The results using a dynamic partial adjustment model show that on average DCs adjust to target leverage faster than MNCs. This provides support for the market-timing, pecking order and dynamic trade-off theories of capital structure. Further the paper identifies and attributes the overall relatively faster capital structure adjustment speed of DCs to relatively higher equity returns for MNCs, relatively lower incidence of under-leverage for DCs and the relatively higher incidence of above-target leverage for DCs. Further tests show that agency costs, financial flexibility (i.e., cash flows) and capital investments have different effects on adjustment process for MNCs relative to DCs. The result partially supports prior evidence of inertia following equity price shock to capital structure rebalancing.
Type: Journal Article
DOI Link:
Rights: The publisher does not allow this work to be made publicly available in this Repository. Please use the Request a Copy feature at the foot of the Repository record to request a copy directly from the author. You can only request a copy if you wish to use this work for your own research or private study.
Affiliation: Accounting and Finance
University of St Andrews

Files in This Item:
File Description SizeFormat 
McMillan_2012_Dynamic_capital_structure_adjustment.pdf605.97 kBAdobe PDFUnder Embargo until 31/12/2999     Request a copy

Note: If any of the files in this item are currently embargoed, you can request a copy directly from the author by clicking the padlock icon above. However, this facility is dependant on the depositor still being contactable at their original email address.

This item is protected by original copyright

Items in the Repository are protected by copyright, with all rights reserved, unless otherwise indicated.

If you believe that any material held in STORRE infringes copyright, please contact providing details and we will remove the Work from public display in STORRE and investigate your claim.