Unleashing the Moderating Influence of Firms’ Life Cycle Stages and National Income on Capital Structure Targeting Behavior: A Roadmap towards Sustainable Development

Abstract

Firms adjust their capital structures to avoid financial distress and bankruptcy to sustain in the market. Asian firms have significantly different financial patterns than their USA and European counterparts. The moderation model gains a better understanding of the relationship between the model variables. We tested the moderating roles of life cycle stages and macro-economic factor gross national income per capita to find their moderating impacts on the speed of adjustment towards target capital structures of Asian manufacturing firms from 2010 to 2018. Our sample of manufacturing industries comes from the eleven Asian economies. We used the dynamic GMM model to estimate moderating impacts and applied the pooled OLS and fixed effect estimations to test the validity of the coefficient of lagged leverage. We find that life cycle stages have positive moderating impacts, and different gross national incomes per capita have no significant effects in adjusting the capital structure. We test the combined moderating impacts of the life cycle and gross national income by applying the full model. The results reveal that moderator variables significantly impact adjusting the target capital structure. From the policy perspective, it is recommended that investors should consider the firms’ life cycle stages and per capita income of the economy in making their international investment portfolios. The government should ensure requisite finance for firms at subsidized interest rates to financially support them at critical stages like introduction and decline.