The syncretism of capital structure theory: An explanation from adjustment speed of capital structure

This paper established dynamic adjustment model of capital structure and analyzed the factors affecting the adjustment speed of capital structure. Based on the unbalanced panel data of Chinese nonfinancial listed companies from 1997 to 2006, this empirical study shows that all dynamic tradeoff theory, pecking-order theory and market-timing theory can explain the adjustment speed of capital structure in some degree, though the three theories have different theoretical basis. If a company dynamically adjusts its capital structure, then its target capital structure is decided based on dynamic tradeoff theory, its adjustment approaches is decided based on pecking-order theory, and its adjustment time is decided based on market-timing theory. So it is necessary to combine the three theories to analyze the determinants and adjustment of capital structure.