Proactive Capital Structure Adjustments: Evidence from Corporate Filings

59 Pages Posted: 21 Jun 2018 Last revised: 18 Aug 2020

See all articles by Arthur G. Korteweg

Arthur G. Korteweg

University of Southern California - Marshall School of Business

Michael Schwert

University of Pennsylvania - The Wharton School

Ilya A. Strebulaev

Stanford University - Graduate School of Business; National Bureau of Economic Research

Date Written: August 14, 2020

Abstract

We use new hand-collected data from corporate filings to study the drivers of corporate capital structure adjustment. Classifying firms by their adjustment frequencies, we reveal previously unknown patterns in their reasons for financing and financial instruments used. Some are consistent with existing theory, while others are understudied. Many leverage changes are outside of the firm's control (e.g., executive option exercise) or incur negligible adjustment costs (e.g., credit line usage). This implies a lower frequency of proactive leverage adjustments than indicated by prior research using accounting data, suggesting that costs of adjustment are higher, or the benefits lower, than previously thought.

Keywords: capital structure, leverage, adjustment costs

JEL Classification: G32

Suggested Citation

Korteweg, Arthur G. and Schwert, Michael and Strebulaev, Ilya A., Proactive Capital Structure Adjustments: Evidence from Corporate Filings (August 14, 2020). Stanford University Graduate School of Business Research Paper No. 18-31, Available at SSRN: https://ssrn.com/abstract=3192267 or http://dx.doi.org/10.2139/ssrn.3192267

Arthur G. Korteweg

University of Southern California - Marshall School of Business ( email )

3670 Trousdale Parkway
Los Angeles, CA 90089
United States

HOME PAGE: http://www.marshall.usc.edu/personnel/arthur-korteweg

Michael Schwert (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Ilya A. Strebulaev

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

HOME PAGE: http://faculty-gsb.stanford.edu/strebulaev/

National Bureau of Economic Research ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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