Dynamic Adjustment towards Target Capital Structure: Thailand Evidence

By employing panel data, the present study examines the dynamic aspects of capital structure of 269 non-financial listed firms in Thailand from 2000 to 2009. This is a relatively new area in finance literature. The present study investigates the existence of target capital structure, speed of adjustment and factors affecting the speed of adjustment. The analyses are conducted using the dynamic Partial Adjustment Model (PAM) and estimated based on the Generalized Method of Moments. The results indicate the existence of target capital structure and firms undergone adjustment processes to be at their target capital structure from time to time with a considerably rapid speed of adjustment, consistent with the dynamic trade-off theory. Firms in Thailand are found to be under-adjusting, being below the required adjustment to be at the target within a year. Strong evidence exists that indicates that firm specific factors significantly influence speed of adjustment for firms in Thailand, such as distance from target, size of firm and profitability. Keywords: Capital structure; partial adjustment model; speed of adjustment; generalized method of moments; Thailand ABSTRAK Dengan menggunakan data panel, aspek dinamik struktur modal 269 firma-firma bukan kewangan yang disenaraikan di Thailand telah dikaji bagi tempoh 2000-2009. Ini merupakan salah satu bidang yang agak baru dalam literatur kewangan. Kajian ini mengenal pasti kewujudan struktur modal sasaran, kelajuan pelarasan dan faktor-faktor yang mempengaruhi kelajuan pelarasan menggunakan Model Pelarasan Separa (PAM) dinamik dan dianggarkan berdasarkan kaedah Generalized Method of Moments. Kajian mendapati bahawa wujud struktur modal sasaran dan firma-firma melakukan peralarasan untuk berada di sasaran dari semasa ke semasa dengan kelajuan pelarasan yang pesat selaras dengan teori keseimbangan dinamik. Firma-firma di Thailand telah didapati terkurang-selaras iaitu di bawah tahap pelarasan yang diperlukan untuk berada di sasaran dalam tempoh setahun. Terdapat bukti-bukti kukuh menunjukkan beberapa faktor-faktor tertentu firma seperti jarak dari sasaran, saiz dan keuntungan firma secara ketara mempengaruhi kelajuan pelarasan bagi firma-firma di Thailand. Kata kunci: Struktur modal; model pelarasan separa; kelajuan pelarasan; generalized method of moments; Thailand