Capital structure of listed Portuguese companies: Determinants of debt adjustment
Zélia Maria Silva Serrasqueiro
Márcia Cristina Rêgo Rogão
Purpose – This study aims to evaluate the impact of listed Portuguese companies' specific determinants on adjustment of actual debt towards target debt ratio. The specific determinants on adjustment of actual debt towards target debt ratio that we consider are: asset tangibility, size, profitability and market to book ratio. Design/methodology/approach – Dynamic panel estimators are used to determine adjustment of the actual level of debt towards optimal level of debt, revealing the level of transaction costs borne by companies. OLS regressions are also used, in order to estimate the impacts of companies' specific determinants on debt adjustment. Findings – The results suggest that transaction costs are relevant in listed Portuguese companies' access to debt. Tangibility of assets and size are determinants that contribute for a greater adjustment of debt towards optimal level. The results also suggest that the capital structure decisions of listed Portuguese companies can be explained in the light of trade-off and pecking order theories, and not according to what is forecast by market timing theory. Originality/value – Through this study, the level of adjustment of actual debt towards target debt ratio in the context of companies belonging to under-developed capital markets are determined, in the particular case of this study, belonging to the Portuguese capital market. Furthermore, from target debt ratio depending on companies' specific determinants, the explanatory power of trade-off, pecking order and market timing theories are investigated. The results contribute for a deeper understanding about companies' capital structure decisions.
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