Does Tangibility Influence Capital Structure Adjustment Speed?

José Milton Almeida-da-Silva, Wilson Toshiro Nakamura, Elaine Vieira Nakamura


This study investigates the influence of the degree of tangibility on the velocity of adjustment towards the target debt, based on dynamic trade off theory. In view of the lack of consensus among researchers, with previous studies showing a diverse range of findings, the topic is a relevant one. We apply the partial adjustment model with Arellano-Bond and Blundell-Bond estimators to dynamic panel data in order to determine the rate of adjustment of the indebtedness of non-financial companies of the United Kingdom in the 10-year period from 2005 through 2014. Three samples are used. The first is composed of 1,045 companies, the second of the 309 companies with the highest degree of tangibility, and the third of the 309 companies with the lowest degree of tangibility. The empirical results present statistically significant evidence of the influence of the degree of tangibility on the speed of adjustment of the level of indebtedness. The speed of adjustment for the group of companies with greater tangibility is less than that of the group of companies with lesser tangibility, when the Blundell-Bond model - whose estimators are more efficient and less biased - is used. These results can contribute to the better management by companies of their capital structure.


Capital structure, Adjustment speed; Tangibility; Trade off theory


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