Economic challenges in Zimbabwe have resulted in firms being pushed out of their optimal leverage. Firms are faced with the need to move back to the optimal level of financing to improve their value. They tend to adjust quickly to the optimal level whenever failing to do so is costlier. This study employs a dynamic capital structure model to examine the determinants of optimal leverage and the speed of adjustment under a hyperinflation and dollarization period (2000–2016). The study shows that firms have an optimal leverage and there are costs of adjusting to this level of capital. Findings are consistent with theoretical predictions of the static trade-off theory (STT) and agency theory. The adjustment factors for all the models were found to be at least 0.475 and are higher under hyperinflation than under dollarization. Both firm and macroeconomic factors explain the optimal capital structure while the former also explains the speed of adjustment. Policies focusing on improving access to and reducing costs for finance will assist firms to maximize value as they adjust to the desired financing mix. The policies adopted may vary in response to the economic environment.
AbdeljawadI., & Mat NorF. (2017). The capital structure dynamics of Malaysian firms: timing behavior vs adjustment toward the target. International Journal of Managerial Finance, 13(3), 226–245.
2.
AbeywardhanaD. K. Y. (2017). Capital structure theory: An overview. Accounting and Finance Research, 6(1), 133–138.
3.
Ab WahabS. N. A., & RamliN. A. (2014). The determinants of capital structure: an empirical investigation of Malaysian listed government linked companies. International Journal of Economics and Financial Issues, 4(4), 930–945.
4.
AhmadimousaabadA., BajuriN., JahanzebA., KaramiM., & RehmanS. (2013). Trade-off theory, pecking order theory and market timing theory: A comprehensive review of capital structure theories. International Journal of Management and Commerce Innovations, 1(1), 11–18.
5.
AkinyomiO. J., & OlagunjuA. (2013). Determinants of capital structure in Nigeria. International Journal of Innovation and Applied Studies, 3(4), 999–1005.
6.
AlagathuraiA. (2013). Determinants of capital structure: Evidence from hotel and restaurant companies in Sri Lanka. International Journal of Scientific and Research Publications, 3(6), 18.
7.
AnZ., LiD., & YuJ. (2016). Earnings management, capital structure, and the role of institutional environments. Journal of Banking and Finance, 68, 131–152.
8.
ArellanoM., & BondS. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58(2), 277–297.
9.
ArifA., & AkbarshahF. (2013). Determinants of dividend policy: a sectoral analysis from Pakistan. International Journal of Business and Behavioral Sciences, 3(9), 16–33.
10.
ArsovS., & NaumoskiA. (2016). Determinants of capital structure: An empirical study of companies from selected post-transition economies. Proceedings of Rijeka Faculty of Economics, Journal of Economics and Business, 34(1), 119–146.
11.
BanerjeeS., HeshmatiA., & WihlborgC. (2004). The dynamics of capital structure. Research in Banking and Finance, 4(1), 275–297.
12.
BarakatM., & RaoR. P. (2012), The role of taxes in capital structure: Evidence from taxed and non-taxed Arab economies. [SSRN electronic journal]. Retrieved from https://ssrn.com/abstract=2026751
13.
BergerP. G., OfekE., & YermackD. L. (1997). Managerial entrenchment and capital structure decisions. The Journal of Finance, 52(4), 1411–1438.
14.
BuvanendraS., SridharanP., & ThiyagarajanS. (2017). Firm characteristics, corporate governance and capital structure adjustments: A comparative study of listed firms in Sri Lanka and India. IIMB Management Review, 29(4), 245–258.
15.
ByounS. (2008). How and when do firms adjust their capital structures toward targets? The Journal of Finance, 63(6), 3069–3096.
16.
ChangC., ChenX., & LiaoG. (2014). What are the reliably important determinants of capital structure in China? Pacific-Basin Finance Journal, 30, 87–113.
17.
ChechetI. L., GarbaS. L., & OduduA. S. (2013). Determinants of capital structure in the Nigerian chemical and paints sector. International Journal of Humanities and Social Science, 3(15), 247–263.
18.
ChenC. J., ChengC. A., HeJ., & KimJ. (1997). An investigation of the relationship between international activities and capital structure. Journal of International Business Studies, 28(3), 563–577.
19.
ChoeH., MasulisR. W., & NandaV. (1993). Common stock offerings across the business cycle: Theory and evidence. Journal of Empirical Finance, 1(1), 3–31.
20.
De MedeirosO.R., & DaherC.E. (2004). Testing static tradeoff against pecking order models of Capital structure in Brazilian firms. [SSRN electronic journal]. Retrieved from https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/0412/0412019.pdf
21.
De MiguelA., & PindadoJ. (2001). Determinants of capital structure: new evidence from Spanish panel data. Journal of Corporate Finance, 7(1), 77–99.
22.
DrobetzW., & WanzenriedG. (2006). What determines the speed of adjustment to the target capital structure? Applied Financial Economics, 16(13), 941–958.
23.
DrobetzW., PensaP., & WanzenriedG. (2007, January). Firm characteristics, economic conditions and capital structure adjustments. WWZ Working Paper No. 16/07, University of Basel, Center of Business and Economics. Retrieved from https://www.econstor.eu/bitstream/10419/123382/1/wp2007-16.pdf
24.
DudleyE. (2012). Capital structure and large investment projects. Journal of Corporate Finance, 18(5), 1168–1192.
25.
EbrahimM. S., GirmaS., ShahM. E., & WilliamsJ. (2014). Dynamic capital structure and political patronage: The case of Malaysia. International Review of Financial Analysis, 31, 117–128.
26.
EllyO. D., & HellenK. W. (2013). Relationship between inflation and dividend payout for companies listed at the Nairobi securities exchange. International Journal of Education and Research, 1(6), 1–8.
27.
Etudaiye-MuhtarO. F., & AhmadR. (2015). Empirical evidence of target leverage, adjustment costs and adjustment speed of non-financial firms in selected African countries. International Journal of Economics and Financial Issues, 5(2), 482–488.
28.
FamaE. F., & FrenchK. R. (2002). Testing trade-off and pecking order predictions about dividends and debt. The Review of Financial Studies, 15(1), 1–33.
29.
FaulkenderM., FlanneryM. J., HankinsK. W., & SmithJ. M. (2012). Cash flows and leverage adjustments. Journal of Financial Economics, 103(3), 632–646.
30.
FlanneryM. J., & RanganK. P. (2006). Partial adjustment toward target capital structures. Journal of Financial Economics, 79(3), 469–506.
31.
FrankM. Z., & GoyalV. K. (2003). Testing the pecking order theory of capital structure. Journal of Financial Economics, 67(2), 217–248.
32.
FrankM. Z., & GoyalV. K. (2009). Capital structure decisions: which factors are reliably important? Financial Management, 38(1), 1–37.
33.
GadielD. (2018). The economic legacy of comrade Mugabe. Policy: A Journal of Public Policy and Ideas, 34(2), 35–43.
34.
GhazouaniT. (2013). The capital structure through the trade-off theory: Evidence from Tunisian firm. International Journal of Economics and Financial Issues, 3(3), 625–636.
35.
GhimireB., & GiorgioniG. (2013). Finance and growth: An investigation into the role of internal, bank and equity finance. Poznan University of Economics Review, 13(2), 13–46.
36.
GhoseB. (2017). Impact of business group affiliation on capital structure adjustment speed: Evidence from Indian manufacturing sector. Emerging Economy Studies, 3(1), 54–67.
37.
Guha-KhasnobisB., & BhaduriS. N. (2002). Determinants of capital structure in India (1990–1998): A dynamic panel data approach. Journal of Economic Integration, 761–776.
38.
HartwellC. A., & MalinowskaA. (2018). Firm-level and institutional determinants of corporate capital structure in Poland: New evidence from the Warsaw stock exchange. Finance a Uver-Czech Journal of Economics and Finance, 68(2), 120–143.
39.
HobdariB., JonesD. C., & MygindN. (2009). Capital investment and determinants of financial constraints in Estonia. Economic Systems, 33(4), 344–359.
40.
HovakimianA., OplerT., & TitmanS. (2001). The debt–equity choice. Journal of Financial and Quantitative Analysis, 36(1), 1–4.
41.
HoveB., & ChidokoC. (2012). Examination of multinational corporate capital structure decisions in Zimbabwe. International Journal of Economics and Research, 3(15), 1–15.
42.
HuangR., & RitterJ. R. (2009). Testing theories of capital structure and estimating the speed of adjustment. Journal of Financial and Quantitative Analysis, 44(2), 237–271.
43.
JambawoT. (2014). Leverage and corporate market value: Empirical evidence from Zimbabwe Stock Exchange. International Journal of Economics and Finance, 6(4), 185–195.
44.
JensenM. C., & MecklingW. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.
45.
JensenM. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American Economic Review, 76(2), 323–329.
46.
JoomaM. Y. H., & GwatidzoT. (2013). Partial adjustment toward target capital structure: Evidence from selected African countries. Journal of Corporate Ownership and Control, 10(3), 386–401.
47.
KanyenzeG., ChitambaraP., & TysonJ. (2017). The outlook for the Zimbabwean economy. Retrieved from https://set.odi.org/wp-content/uploads/2017/08/SET-Outlook-for-Zimbabwe-Economy_Sep2017.pdf
48.
KararachG., & OtienoR. O. (Eds.). (2016). Economic management in a hyperinflationary environment: The political economy of Zimbabwe, 1980–2008. Oxford University Press.
49.
KoksalB., OrmanC., & OduncuA. (2013). Determinants of capital structure: Evidence from a major emerging market economy. MPRA Paper 48415. Retrieved from http://www.ecomod.net.
50.
KorajczykR. A., & LevyA. (2003). Capital structure choice: macroeconomic conditions and financial constraints. Journal of Financial Economics, 68(1), 75–109.
51.
KorajczykR. A., LucasD. J., & McDonaldR. L. (1992). Equity issues with time-varying asymmetric information. Journal of Financial and Quantitative Analysis, 27(3), 397–417.
52.
KoukiM., & GuizaniM. (2009). Ownership structure and dividend policy evidence from the Tunisian stock market. European Journal of Scientific Research, 25(1), 42–53.
53.
KythreotisA., NouriB. A., & SoltaniM. (2018). Determinants of capital structure and speed of adjustment: Evidence from Iran and Australia. International Journal of Business Administration, 9(1), 88–113.
54.
LevinA., LinC. F., & ChuC. S. J. (2002). Unit root tests in panel data: asymptotic and finite-sample properties. Journal of econometrics, 108(1), 1–24.
55.
M’ngJ. C. P., RahmanM., & SannacyS. (2017). The determinants of capital structure: Evidence from public listed companies in Malaysia, Singapore and Thailand. Cogent Economics and Finance, 5(1), 1–34.
56.
MacKinlayA. (2013). How do taxes affect capital structure? Cox School of Business, Southern Methodist University, Dallas, USA.
57.
MahakudJ., & MukherjeeS. (2011). Determinants of adjustment speed to target capital structure: evidence from Indian manufacturing firms. International Conference on Economics and Finance Research, 4, 67–71.
58.
MarkopoulouM. K., & PapadopoulosD. L. (2009). Capital structure signaling theory: evidence from the Greek Stock Exchange. Portuguese Journal of Management Studies, 14(3), 217–238.
59.
MehtaA. (2012). An empirical analysis of determinants of dividend policy: Evidence from the UAE companies. Global Review of Accounting and Finance, 3(1), 18–31.
60.
MiglioriS., MaturoF., & PaoloneF. (2018). Capital structure determinants in family firms: An empirical analysis in context of crisis. International Business Research, 11(4), 65–83.
61.
MillerE. M. (1977). Risk, uncertainty, and divergence of opinion. The Journal of Finance, 32(4), 1151–1168.
62.
MillerM.H., & RockK. (1985). Dividend policy under asymmetric information. The Journal of Finance, 40(4), 1031–1051.
63.
MukonyiP. M. (2016). The relationship between ownership structure and leverage of firms listed in the Nairobi securities exchange(Doctoral dissertation, Egerton University), Nairobi, Kenya.
64.
MutenheriE. (2003). The determinants of corporate financial policy in Zimbabwe: Empirical evidence from company panel data(Doctoral dissertation)Loughborough University, London, United Kingdom.
65.
MutenheriE., & GreenC. J. (2003). Financial reform and financing decisions of listed firms in Zimbabwe. Journal of African Business, 4(2), 155–170.
66.
MyersS. C. (1984). The capital structure puzzle. The Journal of Finance, 39(3), 574–592.
67.
NguyenD. T. T., Diaz-RaineyI., & GregoriouA. (2014). Determinants of the capital structure of listed Vietnamese companies. Journal of Southeast Asian Economies, 31(3), 412–431.
68.
NoeT. H., & RebelloM. J. (1996). Asymmetric information, managerial opportunism, financing, and payout policies. The Journal of Finance, 51(2), 637–660.
69.
OinoI., & UkaegbuB. (2015). The impact of profitability on capital structure and speed of adjustment: An empirical examination of selected firms in Nigerian stock exchange. Research in International Business and Finance, 35, 111–121.
70.
OztekinO., & FlanneryM. J. (2012). Institutional determinants of capital structure adjustment speeds. Journal of Financial Economics, 103(1), 88–112.
71.
QianY., TianY., & WirjantoT. S. (2009). Do Chinese publicly listed companies adjust their capital structure toward a target level? China Economic Review, 20(4), 662–676.
72.
RaftopoulosB., & PhimisterI. (2004). Zimbabwe now: The political economy of crisis and coercion. Historical Materialism, 12(4), 355–382.
73.
RajanR. G., & ZingalesL. (1995). What do we know about capital structure? Some evidence from international data. The Journal of Finance, 50(5), 1421–1460.
74.
RamjeeA., & GwatidzoT. (2012). Dynamics in capital structure determinants in South Africa. Meditari Accountancy Research, 20(1), 52–67.
75.
RiazF., BhattiK. K., & UddinS. (2014). Macroeconomic conditions and firm’s choices of capital structure: Evidence from Pakistan’s manufacturing sectors. Middle-East Journal of Scientific Research, 19(4), 521–531.
76.
RiddellR.C. (1984). Zimbabwe: The economy four years after independence. African Affairs, 83(333), 463–476.
77.
RossS. A. (1977). The determination of financial structure: the incentive-signaling approach. The Bell Journal of Economics, 23–40.
78.
RuanW., TianG., & MaS. (2011). Managerial ownership, capital structure and firm value: Evidence from China’s civilian-run firms. Australasian Accounting, Business and Finance Journal, 5(3), 73–92.
79.
ShaharW. S. S. B., & ManjaS. I. (2018). Determinants of Capital Structure. Reports on Economics and Finance, 4(3), 139–149. Retrieved from https://doi.org/10.12988/ref.2018.8113
80.
SupraB., NarenderV., JadiyappaN., & GirishG. P. (2016). Speed of adjustment of capital structure in emerging markets. Theoretical Economic Letters, 6, 534–538.
81.
TamulyteJ. (2012). The determinants of capital structure in the Baltic States and Russia. Electronic Publications of Pan-European Institute, 1, 2012.
82.
TitmanS., & WesselsR. (1988). The determinants of capital structure choice. The Journal of Finance, 43(1), 1–19.
83.
TongkongS. (2012). Key factors influencing capital structure decision and its speed of adjustment of Thai listed real estate companies. Procedia-Social and Behavioral Sciences, 40, 716–720.
84.
TrinhT. H., & PhuongN. T. (2016). Effects of financial crisis on capital structure of listed firms in Vietnam. International Journal of Financial Research, 7(1), 66–74.
85.
VoD. H., & NguyenV. T. Y. (2014). Managerial ownership, leverage and dividend policies: Empirical evidence from Vietnam’s listed firms. International Journal of Economics and Finance, 6(5), 274–284.
86.
ZainirF., YingY., & AlbaityM. (2016). Determinants of capital structure: A comparison between industrial and consumer sectors in China. Asian Journal of Business and Accounting, 9(2), 1–39.
87.
ZhaoJ. (2015). Ownership, financial constraints and firm investment behavior: Evidence from Chinese manufacturing firms. (Doctoral thesis). University of Maryland, Maryland, USA.
88.
ZhouG., & ZvousheH. (2012). Public policy making in Zimbabwe: A three-decade perspective. International Journal of Humanities and Social Sciences, 2(8), 212–222.
