Firm crash risk, information environment, and speed of leverage adjustment

Zhe An, Donghui Li, Jin Yu

    Research output: Contribution to journalArticleResearchpeer-review

    73 Citations (Scopus)


    This paper examines the effect of a firm s crash-risk exposure on its speed of leverage adjustment (SOA), and how this effect is influenced by the information environment of the country in which the firm is located. We employ a panel of 19,247 firms across 41 countries from 1989 to 2013, and we find that firms with a higher crash-risk exposure tend to adjust their financial leverages more slowly toward their targets. This evidence supports the dynamic trade-off theory that firms with larger transaction costs adjust their capital structures less often. Equally important, we document that the negative link between crash-risk exposure and SOA is less pronounced in countries with a more transparent information environment.
    Original languageEnglish
    Pages (from-to)132 - 151
    Number of pages20
    JournalJournal of Corporate Finance
    Publication statusPublished - 2015

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