Social trust and the speed of corporate leverage adjustment: evidence from around the globe

Peng Huang, Yue Lu, Robert Faff*

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

Abstract

We examine the relation between social trust and the speed of leverage adjustment (SOA) around the world. Using a large international sample (65 countries, 1996–2016), we find that social trust has a positive effect on SOA. In the cross section, we find that the positive effect of social trust on the SOA is more pronounced for: (i) over-levered firms; (ii) firms with higher information asymmetry; (iii) firms with lower ease of financing; and (iv) firms located in countries with weaker governance quality. Overall, we highlight the role of social trust in shaping corporate capital structure.

Original languageEnglish
JournalAccounting and Finance
DOIs
Publication statusE-pub ahead of print - 27 Sep 2020
Externally publishedYes

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