Dynamic Target Leverage and Speed of Adjustment: Evidence from Moroccan Agricultural SMEs

This study examines whether Moroccan agricultural small- and medium-sized enterprises (SMEs) adjust their leverage toward a target capital structure and estimates the speed of adjustment. Drawing on the dynamic trade-off perspective and the partial-adjustment framework, this study uses a balanced panel of 54 Moroccan agricultural SMEs observed from 2017 to 2022, yielding 324 firm-year observations. The empirical analysis employs the Arellano–Bond Difference Generalized Method of Moments (GMMs) estimator to account for the dynamic nature of leverage and potential endogeneity. The results reveal significant leverage persistence, with the coefficient on lagged total leverage estimated at 0.6155 (p < 0.01). The implied annual speed of adjustment is 38.45%, suggesting that firms correct approximately 38% of the deviation between observed and target leverage over one year. The corresponding model-implied half-life is approximately 1.43 years. These findings provide evidence consistent with partial adjustment toward target leverage among Moroccan agricultural SMEs and offer insights into the dynamics of their financing decisions.