The factors that affect the speed of leverage adjustment: The case of Taiwan traded companies

Using basic dynamic panel model to estimate the impact of macroeconomic, market and firm financial factors on the speed of leverage adjustments, we find the evidence that term spread, real gdp growth rate, market dividend yield, industry average market to book ratio, book asset, dividends, operating cash flow, proportion of shareholding in directors and supervisors and proportion of shareholding in foreign investments are significant factors for Taiwan traded companies. Furthermore, we find that firms adjust their leverage toward targets faster in good macroeconomic situation and market timing. In addition, firm’s book asset is positively related to the adjustment speed of firms. However, proportion of shareholding in foreign investment is negatively related to the adjustment speed of firms.