Capital structure adjustment speed and legal environments: Evidence from SMEs

In this research, we investigate the capital structure adjustment speed of small and medium enterprises, which reflects their adaption to changing financial conditions. Taking advantage of a sample of publicly traded enterprises in China over the period of 2011 to 2021, the study finds that SMEs adjust more slowly than large companies because of financing difficulties caused by information asymmetry. This phenomenon is particularly salient in the context of credit contractions. Moreover, we find that effective law enforcement can ease the difficulty of SMEs in raising debt capital, thus accelerating their adjustment to the target capital structure.