Abstract
Since the Modigliani and Miller (1958) was published, a large number of capital structure studies appears. However, recent studies such as Flannery and Rogan (2006) and Morellec et al. (2012) argued that firms do have an optimal capital structure. Besides, different corporate characteristics may affect their speed of adjustment to target capital structure. We use the company of Taiwan’s listed company at stock exchange and over-the counter market from 1995 to 2016 as our sample. Following the literature, we exclude financial and utility firms, then we use System GMM Estimation Method to estimate the target capital structure for each period of our sample. In addition, we refer to Chen et al. (2016), using the Partial Adjustment Model as the empirical model to describe the rate of change in capital structure. In terms of independent variables, we consider the growth opportunity and the corporate governance of the firm in order to look into how these factors affect the speed of adjustment. Furthermore, we test whether these variables’ effect remain the same when the firm is in underleverage, overleverage or in financial crisis. We expect the results will enable us to a better understanding of the factors in the adjustment of capital structure.