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.
|Number of pages||43|
|Journal||Accounting and Finance|
|Early online date||27 Sep 2020|
|Publication status||Published - Jun 2021|