Determinants of Optimal Capital Structure and Speed of Adjustment: Evidence From the U.S. ICT Sector

We employ a dynamic adjustment model (Flannery and Rangan, 2006) to investigate the determinants of capital structure and speed of adjustment (Drobetz and Wanzenried, 2006) in a panel of 85 U.S. ICT firms over the years 1990 to 2013. We estimate the capital structure using a wide range of factors commonly used in the empirical literature (growth and investment opportunities, profitability, firm size, default risk, and industry median capital structure). We expand on this literature to include two additional determinants: asset turnover, an inverse measure of firm agency costs (Morellec, et al., 2012; Ang, Cole, and Lin, 2000), and RD Hsiao, et al., 2002). In addition, our panel-data regression results show that in the ICT sector, the leverage ratio exhibits high persistence. Moreover, it positively relates to growth and investment opportunities, firm size, capital investment, and industry median capital structure, and negatively relates to profitability and default risk.