Management Science· 2026Q1
Inflexibility and Leverage
- 12citations
- Q1SCImago
- 2026year
Short summary
Firms with higher inflexibility to adjust their scale exhibit lower financial leverage, with contraction inflexibility being a stronger determinant than expansion inflexibility.
AI-generated from the title and abstract; the full text is not read.
Key points
- Persistent inflexibility in adjusting firm scale explains capital structure variations.
- Higher inflexibility correlates with lower financial leverage.
- Contraction inflexibility is a stronger predictor of leverage than expansion inflexibility.
- Inflexibility explains leverage beyond operating and cash flow variability.
- Inflexible firms increase leverage more than flexible firms following credit supply shocks.
AI-generated from the title and abstract; the full text is not read.
Abstract
Firms' inflexibility to adjust their scale persistently explains capital structure variations in a comprehensive sample and randomly-selected sub-samples. Higher inflexibility leads to lower financial leverage, potentially due to higher default risk and lower value of tax shields. Contraction inflexibility determines leverage more than expansion inflexibility. Moreover, inflexibility explains financial leverage on top of operating leverage variability and cash flow variability. Interestingly, the substitution effect between financial and operating leverage is much weaker among flexible firms. In addition, inflexible firms increase leverage more than flexible firms following a positive credit supply shock, which supports our main findings.
The authors' abstract, as published at the source. Management Science, 2026 · DOI ↗
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