Unobservable effects and speed of adjustment to target capital structure

• Main Authors: Matemilola, Bolaji Tunde, Amin Noordin, Bany Ariffin, Wan Ngah, Wan Azman Saini, Md Nassir, Annuar
• Format: Article
• Language: English
• Published: Universiti Malaysia Sarawak 2015
• Online Access: http://psasir.upm.edu.my/id/eprint/46813/1/Unobservable%20effects%20and%20speed%20of%20adjustment%20to%20target%20capital%20structure.pdf; http://psasir.upm.edu.my/id/eprint/46813/; http://publisher.unimas.my/ojs/index.php/IJBS/article/view/580
• Institution: Universiti Putra Malaysia

The paper investigates whether unobservable firm-specific effects such as managerial ability is a major component of the target capital structure. We apply the system generalized method of moments that accounts for unobservable firm-specific effects. Our results reveal that unobservable firm-specific effects such as managerial ability are a major component that explains most of the cross-sectional variation in firms’ capital structure in Malaysia.