The Effects Of Leverage Adjustment Speed On Listed Company Growth

With the development of China securities market and the increasing number of listed companies, firms choose two methods to meet the financing demand-equity and debt financing. Debt financing increases leverage effect and tax shield effect for high growth firms, and it can brings debt risks. So appropriate adjustment of the leverage is important for firm growth. To promote the national economy, the government often introduces various aggressive policies to help some enterprises to solve financing difficulties. However, whether the decrease of financing costs, which also means the improvement of leverage adjustment speed(LAS), can contribute to firm growth dose not reach a consensus by foreign and domestic scholars. Therefore, it is very necessary to fully understand the relationship between LAS and firm growth.Many methods, including dynamic framework of partial adjustment model, panel data, mixed-sample regression and stepwise regression are used to estimate the firms LAS and its relationship with firm growth. The sample comprises from2293China public listed companies in26industries.Through mixed-sample and panel-data methods, this research estimated the LAS of each industry over the period from2006to2012, and then stepwise regression is used to optimize the results from the two methods. Finally, the relationship between LAS and firm growth is estimated, based on moderating impacts of the cash flow.The results show that LAS has significant negative effects on the future growth of the enterprise, but LAS has positive effects on the future growth of the enterprise under the moderating impacts of the cash flow, which is produced by investment activities. The results shed new light that LAS and optimal leverage can be calculated by mixed-sample processing method in23industries and by panel-data processing method in20industries. Synthetically, both methods have proved that LAS has significant negative effects on the future growth of the enterprise, but LAS has positive effects on the firm growth under the moderating impacts of the cash flow.