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Abstract

This study investigates the speed of adjustment (SOA) to target leverage for different industry sec- tors in Malaysia. Using the two-step system generalized method of moments for 415 non-financial firms from 2010 to 2021, we found that the SOA for the overall sample is 38.6% and 22.0% for total debt and long-term debt, respectively. Our paper reveals the heterogeneity of SOA based on industry sectors. The industrial sector has the slowest adjustment speed (14.1%), whereas the healthcare in- dustry has the quickest adjustment speed (80.4%) to target leverage. Our results are consistent with the dynamic capital structure theory regarding the deviation between target and actual leverage. Fur- thermore, our study demonstrates the significance of an industry-based perspective when researching SOA, which suggests that the capital structure strategy depends on the industry's business climate.

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