Sustainable adjustment of capital structure in the course of economic development: Evidence from the electronics industry of Taiwan

HSIEN-HUNG YEH, NATIONAL PINGTUNG UNIVERSITY OF SCIENCE AND TECHNOLOGY, TAIWAN AND GRIFFITH UNIVERSITY, AUSTRALIA
Abstract: This paper utilizes the partial adjustment model to investigate the behavior of capital structure adjustment across the years of economic peak and trough over Business Cycles 8 and 10 in the course of economic development for the listed firms of the electronics industry in Taiwan. The findings show that economic development affect capital structure adjustment but its effect varies upon the gap between the target capital structure and the previous capital structure. The results illustrate the variation in the rate of debt ratio adjustment across Business Cycles 8 and 10 in the case of negative gap between the target debt ratio and the previous debt ratio. The variation in the adjustment rate of debt ratios reflects the variation in the demand for the spare debt capacity in the course of economic development in Taiwan.
Keywords: Capital structure, Sustainable adjustment, Spare debt capacity, Economic development, Taiwan