Market differences and adjustment speed of debt, equity, and debt maturity

Abstract

This article investigates the role of market differences and the global financial crisis 2007–2009 (GFC) on the adjustment speed of debt issuance, equity issuance, and debt maturity. The sample of 9731 firm-years from highly regulated Main Market (MAIN) and slightly unregulated Alternative Investment Market (AIM) in the United Kingdom was used. Employing system generalized methods of moments, the findings show that AIM firms have a faster adjustment speed of debt and equity before the GFC than MAIN firms. However, it is vice versa after the GFC because AIM firms face greater problems in accessing finance due to the shrinkage of bank credits during the recession. Besides, MAIN firms have faster adjustments on long-term debt over the time, whereas AIM firms have faster adjustment speed of trade credits. Overall, investors should consider market differences and recessions to take accurate decisions on debt-equity and debt maturity to invest where and when. JEL Classification: C26, G01, G32

Adjustment Speed of Debt Maturity: Evidence From Financial Crises in East Asia

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