Cash Flows and Leverage Adjustments

  title={Cash Flows and Leverage Adjustments},
  author={Michael W. Faulkender and M. Flannery and K. Hankins and J. Smith},
  journal={Journal of Financial Economics},
  • Michael W. Faulkender, M. Flannery, +1 author J. Smith
  • Published 2012
  • Economics
  • Journal of Financial Economics
  • Recent research has emphasized the impact of transaction costs on firm leverage adjustments. We recognize that cashflow realizations can provide opportunities to adjust leverage at relatively low marginal cost. We find that a firm's cashflow features affect not only the leverage target, but also the speed of adjustment toward that target. Heterogeneity in adjustment speeds is driven by an economically meaningful concept: adjustment costs. Accounting for this fact produces adjustment speeds that… CONTINUE READING
    216 Citations
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