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Asymmetric peer effects in capital structure dynamics

by Hyun Joong Im

ARTICLE | Economics Letters | Vol. 176, 2019


Using a semiparametric smooth-coefficient partial adjustment model, this study finds evidence for asymmetric peer effects on capital structure adjustment speeds between overlevered and underlevered firms. Overlevered firms’ adjustment speeds and peer firm shocks have a U-shaped relationship, while underlevered firms’ adjustment speeds monotonically increase with peer firm shocks.
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