How capital structure adjusts dynamically during financial crises

The availability of a unique data set of financially distressed firms enabled this study to apply a dynamic capital structure adjustment model to study capital structure adjustment dynamics. In addition, the factors driving capital structure adjustment of financially distressed and of healthy firms were estimated. The results identified 13 significant variables, which included many macroeconomic variables previously not studied, thus providing new evidence on the impact of macroeconomic factors on the capital structure dynamics of firms. We also estimated the adjustment parameters using a new dynamic adjustment model applied to an unbalanced panel data set of distressed and healthy firms. It is found that the adjustment parameters are different in the short term and long term. These new findings add to the capital structure literature.