Proactive Capital Structure Adjustments: Evidence from Corporate Filings

We use new hand-collected data from corporate filings to study the drivers of corporate capital structure adjustment. Classifying firms by their adjustment frequencies, we reveal previously unknown patterns in their reasons for financing and the financial instruments used. Some are consistent with existing theory, whereas others are understudied. Many leverage changes are outside of the firm’s control (e.g., executive option exercise) or incur negligible adjustment costs (e.g., credit-line usage). This implies a lower frequency of proactive leverage adjustments than indicated by prior research using accounting data, suggesting that costs of adjustment are higher, or the benefits lower, than previously thought.