Asymmetric peer effects in capital structure dynamics

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Abstract

Using a semiparametric smooth-coefficient partial adjustment model, this study finds evidence for asymmetric peer effects on capital structure adjustment speeds between overlevered and underlevered firms. Overlevered firms’ adjustment speeds and peer firm shocks have a U-shaped relationship, while underlevered firms’ adjustment speeds monotonically increase with peer firm shocks.

Original languageEnglish
Pages (from-to)17-22
Number of pages6
JournalEconomics Letters
Volume176
DOIs
StatePublished - Mar 2019

Keywords

  • Capital structure
  • Leverage dynamics
  • Peer effects
  • Speed of adjustment

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