Abstract
This study aims to examine the impact of cash flow position on the speed of capital structure adjustment. We apply a two-step model using data of manufacturing-listed companies in Indonesia from 2007 to 2016. First, we estimate target leverage by considering two variables reflecting Market debt ratio. Then we use that target to determine adjustment speeds. Finally, we analyse the influence of cash flow position on speed of adjustment. The results from panel data analysis indicate that the speed of adjustment of over-leveraged companies is higher than that of under-leveraged companies. This study also finds that among over-leveraged companies, the speed of adjustment is greater in companies which have positive cash flow. On the contrary, among under-leveraged companies, the speed of adjustment is greater in companies which have negative cash flow conditions.
| Original language | English |
|---|---|
| Title of host publication | Contemporary Issues in Finance, Accounting, and Consumers' Behavior |
| Subtitle of host publication | Lessons from Indonesia |
| Publisher | Nova Science Publishers, Inc. |
| Pages | 75-88 |
| Number of pages | 14 |
| ISBN (Electronic) | 9781536175707 |
| ISBN (Print) | 9781536168815 |
| Publication status | Published - 15 Apr 2020 |
Keywords
- Capital structure
- Cash flow position
- Leverage
- Speed of adjustment