Target leverage and speed of adjustment along the life cycle of Eurpean listed firms

  1. Paula Castro 12
  2. María Teresa Tascón Fernández 1
  3. Borja Amor-Tapia 1
  4. Alberto de Miguel 2
  1. 1 Universidad de León
    info

    Universidad de León

    León, España

    ROR https://ror.org/02tzt0b78

  2. 2 Universidad de Salamanca
    info

    Universidad de Salamanca

    Salamanca, España

    ROR https://ror.org/02f40zc51

Journal:
Business Research Quarterly

ISSN: 2340-9444,  2340-9436

Year of publication: 2016

Volume: 19

Issue: 3

Pages: 188-205

Type: Article

DOI: 10.1016/J.BRQ.2016.01.003 DIALNET GOOGLE SCHOLAR lock_openBULERIA editor

More publications in: Business Research Quarterly

Abstract

This paper analyzes differences in target leverage and speed of adjustment across three life cycle stages of European listed firms: introduction, growth and maturity. We determine that profitability and tangibility are the most stable determinants, whereas growth opportunities and size exhibit changing effects across stages. The speed of adjustment does not increase as the firms evolve, as firms in introduction are able to adjust the fastest. Firms changing stage adjust leverage at a lower speed, and their target is more affected by profitability, primarily when the change is from growth to maturity. Finally, we confirm the existence of long-term debt targets, by providing evidence that the next-year target is a relevant factor to explain current debt when firms change from one stage to another

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Funding information

Financial support from the Spanish Ministry of Science and Innovation (ECO2011-29144-C03-01) and support from the University of Leon (ULE2012-1) are gratefully acknowledged. Paula Castro also acknowledges the Grant FPU (AP2012-1959) from the Spanish Ministry of Education, Culture and Sports

Funders

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