Speed of capital structure adjustment to the target in Latin American firms

The aim of this research was to evaluate the speed of capital structure adjustment to the target in Latin American firms. We used an innovative methodology to discuss the dynamics of capital structure, which allowed us to compare the results of a new approach with five other well-known approaches in the literature. We used a sample of listed firms in Latin American countries, namely Argentina, Brazil, Chile, Mexico, and Peru, covering a period of twenty years (2002–2021). We found that, unlike the discussion about the slow adjustment of capital structure that dominated the literature for decades, managers of Latin American companies do, in fact, make decisions to adjust the capital structure, reducing nearly half of the debt target gap within one period. Our results are relevant because, with an innovative approach, we concluded that the issue of slow adjustment is strongly associated with the specification and interpretation of dynamic capital structure adjustment models. © The Author(s), under exclusive licence to Springer Nature Switzerland AG 2024.