Global leverage adjustments, uncertainty, and country institutional strength

Gonul Colak, Ali Gungoraydinoglu, Özde Öztekin

Research output: Contribution to journalArticleScientificpeer-review

83 Citations (Scopus)


Using a broad range of uncertainty measures, we show that uncertainty dramatically slows down firms’ adjustments toward their optimal capital structure. At the upper bound, the estimated speed of leverage adjustments almost halves when uncertainty is high. High quality institutions (common law legal origin, more disclosure to congress and/or to the public, and higher public sector ethics) and presidential political systems offset some of the adverse effects of uncertainty on leverage adjustments. The financial crisis has altered the relationships among uncertainty, adjustment speeds, and a country's institutions; more so for countries with weak institutions and parliamentary systems.
Original languageEnglish
Peer-reviewed scientific journalJournal of Financial Intermediation
Issue numberPart A
Pages (from-to)41-56
Number of pages16
Publication statusPublished - 05.02.2018
MoE publication typeA1 Journal article - refereed


  • 512 Business and Management
  • Institutions
  • International
  • Leverage
  • Uncertainty
  • Speed of adjustment
  • Financial crisis


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