Speed of Adjustment of Capital Structure : A Dynamic Threshold Panel Analysis for Indian Companies

The present study estimates differential speed of adjustment (SOA) for different categories of firms operating in the manufacturing sector in India. We use the advanced dynamic threshold panel regression technique to estimate the differential SOA on a sample of 926 Indian manufacturing firms for 10 years. The findings of the study support the dynamic trade-off theory of capital structure and result highlight that SOA significantly varies across firms’ age and size. Specifically, younger firms have higher SOA compared to older firms. It is also observed that small-sized firms have higher SOA as compared to large-sized firms. Further examination reveals that dividend payout can be the reason behind the slow SOA for the old and large-sized companies