This paper shows that the frequency of capital structure adjustment varies significantly across firms. The most active 25% of firms account for 51% of leverage adjustments, while the least active 50% of firms account for only 19% of such events. Using new hand-collected data from detailed corporate filings, we find that frequently rebalancing firms tend to use lines of credit to fund operating losses and working capital needs. In contrast, infrequently rebalancing firms use long-term debt and equity to fund investment and rebalance capital structure. These findings underscore the importance of adjustment costs in financing decisions and show that the reasons for rebalancing are much broader than those covered by contemporary capital structure theories. Our results demonstrate the advantage of complementing accounting data with rich textual data from corporate filings.
