Is Managerial Ability Associated with Capital Structure Adjustment Speed?*

We find that firms with more capable managers exhibit a slower adjustment speed of capital structure toward the target level. This result is stronger for younger and smaller firms. These can be explained by capable managers' avoidance of transaction costs and their decision to focus on core activities rather than on capital structure adjustment. Lastly, the negative relation between firm value and the deviation from target capital structure is weaker for firms with competent managers, implying that the stock market does not discount the value of firms deviating from the target capital structure if they are managed by competent managers.