TRADE OFF THEORY DAN KECEPATAN PENYESUAIAN KE ARAH TARGET LEVERAGE (SUATU TINJAUAN TEORITIS DAN EMPIRIS)
DOI:
https://doi.org/10.26740/bisma.v9n2.p69-79Keywords:
trade off theory, speed of adjustment, partial adjustment model, dynamic trade off modelAbstract
Trade off theory of capital structure predicts that firms have optimal target leverage. However, empirical studies provide evidence that firms capital structure often deviate from the target because of economic shocks. Therefore firm should make adjustment toward target leverage to maintain optimal trade off between cost and benefit of their financing decision.
Understanding of adjustment behavior of the firm is key factor to comprehend firms capital structure dynamic. Nevertheless, asan important issue in corporate finance, speed of adjustment estimation still have several problems caused bias and spurious result. Recent studies identified several econometric problems of the model used by previous studies. This paper revisited these problems and provide several alternative solutions from recent studies.
References
Baker, M., & Wurgler, J. (2002). Market Timing and Capital Structure. The Journal of FInance, LVII(1), 132. Baxter, N. D. (1967). Leverage, Risk of Ruin and Cost of Capital. The Journal of Finance, 22(3), 395403.
Bontempi, M. E., Bottazzi, L., & Golinelli, R. (2015). Dynamic corporate capital structure behavior¯: empirical assessment in the light of heterogeneity and non stationarity. Working Paper.
Byoun, S. (2008). How and When Do Firms Adjust Their Capital Structures toward Targets¯? Journal of Finance, LXIII(6), 30693096.
Chang, X., & Dasgupta, S. (2009). Target Behavior and Financing¯: How Conclusive Is the Evidence¯? The Journal of Finance, LXIV(4), 1767 1796.
Chang, X., & Dasgupta, S. (2011). Monte Carlo simulations and capital structure research. International Review of Finance, 11(1), 1955. https://doi.org/10.1111/j.1468-2443.2011.01126.x
Chauhan, G. S., & Huseynov, F. (2016). Corporate financing and target behavior: New tests and evidence. Journal of Corporate Finance. https://doi.org/10.1016/j.jcorpfin.2016. 10.013
Chen, L., & Zhao, X. (2007). Mechanical mean reversion of leverage ratios. Economics Letters, 95, 223229. https://doi.org/10.1016/j.econlet.2006.1 0.008
Clark, B., Francis, B., & Hasan, I. (2009). Do firms adjust toward target capital structures¯? Some international evidence. SSRN Electronic Journal, (December 2007).
Dang, V., Garrett, I., & Nguyen, C. (2010). Asymmetric Partial Adjustment towards Target Leverage¯: International Evidence. Unpublish Manuscript, University of Manchester.
Elsas, R., & Florysiak, D. (2011). Heterogeneity in the Speed of Adjustment toward Target. International Review of Finance, 11(2), 181211. https://doi.org/10.1111/j.1468-2443.2011.01130.x
Elsas, R., & Florysiak, D. (2015). Dynamic Capital Structure Adjustment and the Impact of Fractional Dependent Variables. Journal of Financial and Quantitative Analysis, 50(5), 11051133. https://doi.org/10.1017/S0022109015000496
Fama, E. F., & French, K. R. (2002). Testing Trade-Off and Pecking Order Predictions about Dividends and Debt Testing Trade-Off and Pecking Order Predictions About Dividends and Debt. The Review of Financial Studies, 15(1), 133.
Faulkender, M., Flannery, M. J., Hankins, K. W., & Smith, J. M. (2010). Cash Flows and Leverage Adjustments. SSRN Electronic Journal.
Fischer, E., Heinkel, R., & Zechner, J. (1989). Dynamic Capital Structure Choice¯: Theory and Tests. The Journal of Finance, XLIV(1), 1940.
Flannery, M. J., & Rangan, K. P. (2006). Partial adjustment toward target capital structures. Journal of Financial Economics, 79, 469506. https://doi.org/10.1016/j.jfineco.2005.0 3.004
Frank, M. Z., & Goyal, V. K. (2009). Capital Structure Decisions¯: Which Factors Are Reliably Important¯? Financial Management, (Spring), 137.
Graham, J. R. (2000). How Big Are the Tax Benefits of Debt¯? The Journal of Finance, LV(5), 19011941.
Graham, J. R., & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(23), 187243 https://doi.org/10.1016/S0304 405X(01)00044-7
Graham, J. R., & Leary, M. T. (2011). A Review of Empirical Capital Structure Research and Directions for the Future. Annu. Rev. Financ. Econ, 3(November), 30945. https://doi.org/10.1146/annurev-financial-102710-144821
Hackbarth, D., Hennessy, C. A., & Leland, H. E. (2007). Can the Trade-off Theory Explain Debt Structure¯? The Review of Financial Studies, 20(5), 13891428. https://doi.org/10.1093/rfs/hhl047
Hovakimian, A., & Li, G. (2011). In search of conclusive evidence¯: How to test for adjustment to target capital structure. Journal of Corporate Finance, 17(1), 3344. https://doi.org/10.1016/j.jcorpfin.2010. 07.004
Hovakimian, A., & Li, G. (2012). Is the Partial Adjustment Model a Useful Tool for Capital Structure Research¯?∗. Review of Finance, 16(September), 733754. https://doi.org/10.1093/rof/rfq020
Hovakimian, A., Opler, T., & Titman, S. (2001). The Debt-Equity Choice. The Journal of Financial and Quantitative Analysis, 36(1), 124.
Huang, R., & Ritter, J. R. (2009). Theories of Capital Structure and Testing of the Speed Adjustment Estimating. The Journal of Financial and Quantitative Analysis, 44(2), 237271. https://doi.org/10.1017/S002210900909 0152
Jensen, C., & Meckling, H. (1976). Theory of The Firm¯: Managerial Behavior. Agency Cost and Ownership Structure. Journal of Financial Economics, 3, 305360.
Korajczyk, R. A., & Levy, A. (2003). Capital structure choice¯: macroeconomic conditions and financial constraints $. Journal ofFinancial Economics, 68, 75109.
Kraus, A., & Litzenberger, R. H. (1973). AState-Preference Model of Optimal Financial Leverage. The Journal of Finance, 28(4), 911922. Lemmon, M. L., Roberts, M. R., & Zender, J. F. (2008). Back to the Beginning¯: Persistence and the Cross- Section of Corporate Capital Structure. The Journal of Finance, LXIII(4),15751608.
Modigliani, F., & Miller, M. H. (1958). The Cost of Capital, Corporate Finance and The Theory of Investment. The American Economic Review, 48(3), 261297.
Mukherjee, T., & Wang, W. (2013). Capital Structure Deviation and Speed of. The Financial Review, 48, 597615.
Myers, S. C. (1984). The Capital Structure Puzzle. The Journal of Finance, 39(3), 575592.
Shyam-sunder, L., & Myers, S. C. (1999). Testing static tradeoff against pecking order models of capital structure. Journal of Financial Economics, 51,219244.
Titman, S., & Tsyplakov, S. (2007). A Dynamic Model of Optimal Capital
Structure ∗. Review of Finance, 11(June), 401451. https://doi.org/10.1093/rof/rfm017
Bontempi, M. E., Bottazzi, L., & Golinelli, R. (2015). Dynamic corporate capital structure behavior¯: empirical assessment in the light of heterogeneity and non stationarity. Working Paper.
Byoun, S. (2008). How and When Do Firms Adjust Their Capital Structures toward Targets¯? Journal of Finance, LXIII(6), 30693096.
Chang, X., & Dasgupta, S. (2009). Target Behavior and Financing¯: How Conclusive Is the Evidence¯? The Journal of Finance, LXIV(4), 1767 1796.
Chang, X., & Dasgupta, S. (2011). Monte Carlo simulations and capital structure research. International Review of Finance, 11(1), 1955. https://doi.org/10.1111/j.1468-2443.2011.01126.x
Chauhan, G. S., & Huseynov, F. (2016). Corporate financing and target behavior: New tests and evidence. Journal of Corporate Finance. https://doi.org/10.1016/j.jcorpfin.2016. 10.013
Chen, L., & Zhao, X. (2007). Mechanical mean reversion of leverage ratios. Economics Letters, 95, 223229. https://doi.org/10.1016/j.econlet.2006.1 0.008
Clark, B., Francis, B., & Hasan, I. (2009). Do firms adjust toward target capital structures¯? Some international evidence. SSRN Electronic Journal, (December 2007).
Dang, V., Garrett, I., & Nguyen, C. (2010). Asymmetric Partial Adjustment towards Target Leverage¯: International Evidence. Unpublish Manuscript, University of Manchester.
Elsas, R., & Florysiak, D. (2011). Heterogeneity in the Speed of Adjustment toward Target. International Review of Finance, 11(2), 181211. https://doi.org/10.1111/j.1468-2443.2011.01130.x
Elsas, R., & Florysiak, D. (2015). Dynamic Capital Structure Adjustment and the Impact of Fractional Dependent Variables. Journal of Financial and Quantitative Analysis, 50(5), 11051133. https://doi.org/10.1017/S0022109015000496
Fama, E. F., & French, K. R. (2002). Testing Trade-Off and Pecking Order Predictions about Dividends and Debt Testing Trade-Off and Pecking Order Predictions About Dividends and Debt. The Review of Financial Studies, 15(1), 133.
Faulkender, M., Flannery, M. J., Hankins, K. W., & Smith, J. M. (2010). Cash Flows and Leverage Adjustments. SSRN Electronic Journal.
Fischer, E., Heinkel, R., & Zechner, J. (1989). Dynamic Capital Structure Choice¯: Theory and Tests. The Journal of Finance, XLIV(1), 1940.
Flannery, M. J., & Rangan, K. P. (2006). Partial adjustment toward target capital structures. Journal of Financial Economics, 79, 469506. https://doi.org/10.1016/j.jfineco.2005.0 3.004
Frank, M. Z., & Goyal, V. K. (2009). Capital Structure Decisions¯: Which Factors Are Reliably Important¯? Financial Management, (Spring), 137.
Graham, J. R. (2000). How Big Are the Tax Benefits of Debt¯? The Journal of Finance, LV(5), 19011941.
Graham, J. R., & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(23), 187243 https://doi.org/10.1016/S0304 405X(01)00044-7
Graham, J. R., & Leary, M. T. (2011). A Review of Empirical Capital Structure Research and Directions for the Future. Annu. Rev. Financ. Econ, 3(November), 30945. https://doi.org/10.1146/annurev-financial-102710-144821
Hackbarth, D., Hennessy, C. A., & Leland, H. E. (2007). Can the Trade-off Theory Explain Debt Structure¯? The Review of Financial Studies, 20(5), 13891428. https://doi.org/10.1093/rfs/hhl047
Hovakimian, A., & Li, G. (2011). In search of conclusive evidence¯: How to test for adjustment to target capital structure. Journal of Corporate Finance, 17(1), 3344. https://doi.org/10.1016/j.jcorpfin.2010. 07.004
Hovakimian, A., & Li, G. (2012). Is the Partial Adjustment Model a Useful Tool for Capital Structure Research¯?∗. Review of Finance, 16(September), 733754. https://doi.org/10.1093/rof/rfq020
Hovakimian, A., Opler, T., & Titman, S. (2001). The Debt-Equity Choice. The Journal of Financial and Quantitative Analysis, 36(1), 124.
Huang, R., & Ritter, J. R. (2009). Theories of Capital Structure and Testing of the Speed Adjustment Estimating. The Journal of Financial and Quantitative Analysis, 44(2), 237271. https://doi.org/10.1017/S002210900909 0152
Jensen, C., & Meckling, H. (1976). Theory of The Firm¯: Managerial Behavior. Agency Cost and Ownership Structure. Journal of Financial Economics, 3, 305360.
Korajczyk, R. A., & Levy, A. (2003). Capital structure choice¯: macroeconomic conditions and financial constraints $. Journal ofFinancial Economics, 68, 75109.
Kraus, A., & Litzenberger, R. H. (1973). AState-Preference Model of Optimal Financial Leverage. The Journal of Finance, 28(4), 911922. Lemmon, M. L., Roberts, M. R., & Zender, J. F. (2008). Back to the Beginning¯: Persistence and the Cross- Section of Corporate Capital Structure. The Journal of Finance, LXIII(4),15751608.
Modigliani, F., & Miller, M. H. (1958). The Cost of Capital, Corporate Finance and The Theory of Investment. The American Economic Review, 48(3), 261297.
Mukherjee, T., & Wang, W. (2013). Capital Structure Deviation and Speed of. The Financial Review, 48, 597615.
Myers, S. C. (1984). The Capital Structure Puzzle. The Journal of Finance, 39(3), 575592.
Shyam-sunder, L., & Myers, S. C. (1999). Testing static tradeoff against pecking order models of capital structure. Journal of Financial Economics, 51,219244.
Titman, S., & Tsyplakov, S. (2007). A Dynamic Model of Optimal Capital
Structure ∗. Review of Finance, 11(June), 401451. https://doi.org/10.1093/rof/rfm017
Downloads
Published
2018-04-06
How to Cite
Cahyaningdyah, D. (2018). TRADE OFF THEORY DAN KECEPATAN PENYESUAIAN KE ARAH TARGET LEVERAGE (SUATU TINJAUAN TEORITIS DAN EMPIRIS). BISMA (Bisnis Dan Manajemen), 9(2), 69–79. https://doi.org/10.26740/bisma.v9n2.p69-79
Issue
Section
Articles
License
Copyright Notice.
The copyright of the received article once accepted for publication shall be assigned to the journal as the publisher of the journal. The intended copyright includes the right to publish the article in various forms (including reprints). The journal maintains the publishing rights to the published articles.
Abstract views: 919
,
PDF Downloads: 1921
