We would like to invite you to participate in Management Engineering (ME) Seminar.

1. When: September 6th (Thursday), 16:00 ~ 17:30
2. Where: Building 9, 7th #9701
3. Speaker: Prof. Suh, Jungwon (Sungkyunkwan University)
4. Topic: Asymmetry in Leverage Revisions
5. Research field: Finance

Abstract:
This study examines leverage revisions, defined as large upward or downward changes in the book debt ratio. Our results reveal that downward and upward leverage revisions are shaped by different sets of forces. Downward revisions (which are driven largely by debt retirement) move firms instantly and permanently to target ratios, whereas upward revisions (which are driven largely by debt issuance) induce significant deviations from target ratios and are followed by gradual rebalancing. The trajectories of leverage over the period around debt retirement and debt issuance are almost identical to those of leverage over the period around downward and upward leverage revisions, respectively. Firms finance downward revision or debt retirement primarily with equity issuance, not with cash holdings. Our predictive regressions show that downward revision is likely if the firm has recently increased its leverage or if it anticipates increases in internal funds, whereas upward revision is likely if the firm is an active equity issuer or if it undertakes major investment. Our evidence calls for rethinking the role of fixed adjustment costs and target leverage and raises serious doubts about partial leverage adjustment models.