Long-term adjustment of capital structure : evidence from Singapore, Hong Kong and Taiwan

Authors

Tai Leung, Terence CHONG, Department of Economics, Hong Kong Institute of Asia-Pacific Studies, Chinese University of Hong Kong, Shatin, NT, Hong Kong
Tak Yan, Daniel LAW, Department of Economics, Chinese University of Hong Kong, Shatin, NT, Hong Kong
LIN ZOU, Department of Economics, Dorothy Y. L. Wong Building, Lingnan University, 8 Castle Peak Road, Tuen Mun, NT, Hong Kong

Document Type

Journal article

Source Publication

Singapore Economic Review

Publication Date

12-1-2012

Volume

57

Issue

4

Article Number

1250027

Publisher

World Scientific Publishing Co. Pte. Ltd.

Keywords

Capital structure, financial deficit, market timing, pecking order

Abstract

This paper examines the impact of profitability, stock price performance and growth opportunity on the capital structure of firms in Singapore, Taiwan and Hong Kong. In contrast to Kayhan and Titman (2007), it is found that firms in these three Chinese-dominated economies strongly prefer debt to equity or internal fund financing. They also take advantage of stock price appreciation by issuing more shares. An adjustment model for debt ratios is estimated. The results suggest that the leverage ratios of these firms slowly adjust toward their target levels. Deviations from the target due to the pecking order and market timing effects are found to be significant.

DOI

10.1142/S0217590812500270

Print ISSN

02175908

E-ISSN

17936837

Publisher Statement

Copyright © World Scientific Publishing Company. Access to external full text or publisher's version may require subscription.

Full-text Version

Publisher’s Version

Language

English

Recommended Citation

Chong, T. T.-L., Law, D. T.-Y., & Zou, L. (2012). Long-term adjustment of capital structure: Evidence from Singapore, Hong Kong and Taiwan. The Singapore Economic Review, 57(4), article no 1250027. doi: 10.1142/S0217590812500270