Factors Influencing Speed of Adjustment to Target Leverage in Communicational Sector

In this research paper firms from telecommunication sector from all over the world were tested on the essence of existence of target leverage and, mainly, factors influencing it. The main purpose of this study was to evaluate factors which are significant when estimating speed of adjustment to target leverage. As the result of GMM regressions we got some consistent regressions, which gave us the idea of what explanatory variables influence speed of adjustment to target leverage. Results turned out to be interesting, because Size, core variable, which usually has positive influence on the speed of adjustment, according to the previous studies, turned out to be negatively related to the speed of adjustment, hence, it means that larger firms in telecommunication sector adjust their leverage more slowly than smaller ones. This could be explained by the specificity of the industry – this sector is on its early stage of development, so there are “big players” on the market like “AT&T” or “Vodafone” with high values of assets, which constitute to the major share on the market, however small firms have good growth opportunities, so banks do not give their preference in lending to large firms. Non-debt tax shield sign gave consistent with literature result, being negatively related to the speed of adjustment, meaning increasing depreciation expenses slows down the adjustment toward target leverage. Profitability turned out to have positive relation on the speed of adjustment, so, more profitable firms want to leverage more to have benefits from the tax shield. Overall, investigation of effects on capital structure in such new and rapidly growing industry, like telecommunication sector, gave peculiar results, sometimes contradicting traditional literature. So, this sector requires more deep and precise researches in future.