DYNAMIC PANEL DATA ESTIMATORS IN LEVERAGE ADJUSTMENTS MODEL

10.6292/AFPF.202212_(10).0004

Hui-Ching Chuang；Jui-Chung Yang

Dynamic Panel ； Half-Panel Jackknife ； Weak Instrument ； Leverage Targeting

Advances in Financial Planning and Forecasting

10期（2022 / 12 / 01）

67 - 111

英文

In this paper, we study firms' speed of adjustment (SOA) toward target leverage levels. We consider the traditional Arellano-Bond type generalized method of moment (GMM) estimators, and the half-panel Jackknife fixed effects (HPJ FE) estimator (Chudik, Pesaran, & Yang, 2018). Unlike GMM estimators, HPJ FE is easy to use and does not require the selection of exogenous variables' treatment and the number of moment conditions. Our Monte Carlo estimation shows that when N (the cross-section dimension) is large relative to T (the time series dimension), the HPJ FE estimator outperforms Arellano-Bond type estimators. The bias is reduced to nearly zero, the estimate is efficient, and the inference is valid. Empirically, using the 760 listed U.S. public firms, we show that the average speed of adjustment of firms' optimal leverage targeting process is around 15%.

1. Anderson, T. W.,Hsiao, C.(1981).Estimation of dynamic models with error components.Journal of the American Statistical Association,76,598-606.
2. Arellano, M.(1987).Computing robust standard errors for within-groups estimators.Oxford Bulletin of Economics and Statistics,49,431-434.
3. Arellano, M.,Bond, S.(1991).Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations.The Review of Economic Studies,58,277-297.
4. Arellano, M.,Bover, O.(1995).Another look at the instrumental variable estimation of error-components models.Journal of Econometrics,68,29-51.
5. Baker, M.,Wurgler, J.(2002).Market timing and capital structure.Journal of Finance,57,1-32.
6. Baltagi, B. H.(2010).Econometric analysis of panel data.Chichester, UK:Wiley.
7. Bates, T. W.,Kahle, K. M.,Stulz, R. M.(2009).Why do us firms hold so much more cash than they used to?.The Journal of Finance,64,1985-2021.
8. Beck, T.,Levine, R.,Loayza, N.(2000).Finance and the sources of growth.Journal of Financial Economics,58,261-300.
9. Blundell, R.,Bond, S.(1998).Initial conditions and moment restrictions in dynamic panel data models.Journal of Econometrics,87,115-143.
10. Bowsher, C. G.(2002).On testing overidentifying restrictions in dynamic panel data models.Economics Letters,77,211-220.
11. Chudik, A.,Pesaran, M. H.,Yang, J. C.(2018).Half-panel jackknife fixed effects estimation of panels with weakly exogenous regressor.Journal of Applied Econometrics,33,816-836.
12. Dhaene, G.,Jochmans, K.(2015).Split-panel jackknife estimation of fixed-effect models.The Review of Economic Studies,82,991-1030.
13. Fama, E. F.,French, K. R.(2002).Testing trade-off and pecking order predictions about dividends and debt.Review of Financial Studies,15,1-33.
14. Fama, E. F.,French, K. R.(1997).Industry costs of equity.Journal of Financial Economics,43,153-193.
15. Faulkender, M.,Flannery, M. J.,Hankins, K. W.,Smith, J. M.(2012).Cash flows and leverage adjustments.Journal of Financial Economics,103,632-646.
16. Flannery, M. J.,Rangan, K. P.(2006).Partial adjustment toward target capital structures.Journal of Financial Economics,79,469-506.
17. Frank, M. Z.,Goyal, V. K.(2009).Capital structure decisions: Which factors are reliably important?.Financial Management,38,1-37.
18. Hsiao, C.,Zhang, J.(2015).IV, GMM or likelihood approach to estimate dynamic panel models when either N or T or both are large.Journal of Econometrics,187,312-322.
19. Huang, R.,Ritter, J.R.(2009).Testing theories of capital structure and estimating the speed of adjustment.Journal of Financial and Quantitative Analysis,44,237-271.
20. Khadraoui, N.,Smida, M.(2012).Financial development and economic growth: Static and dynamic panel data analysis.International Journal of Economics and Finance,4,94-104.
21. Lemmon, M. L.,Roberts, M. R.,Zender, J. F.(2008).Back to the beginning: Persistence and the cross-section of corporate capital structure.The Journal of Finance,63,1575-1608.
22. Myers, S. C.(1984).The capital structure puzzle.Journal of Finance,39,574-592.
23. Nickell, S.(1981).Biases in dynamic models with fixed effects.Econometrica,49,1417-1426.
24. Opler, T.,Pinkowitz, L.,Stulz, R.,Williamson, R.(1999).The determinants and implications of corporate cash holdings.Journal of Financial Economics,52,3-46.
25. Roodman, D.(2009).A note on the theme of too many instruments.Oxford Bulletin of Economics and Statistics,71,135-158.
26. White, H.(1980).A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity.Econometrica,48,817-838.
27. Wintoki, M. B.,Linck, J. S.,Netter, J. M.(2012).Endogeneity and the dynamics of internal corporate governance.Journal of Financial Economics,105,581-606.