Leverage Behavior in Tehran Stock Exchange

Target leverage is one of the challenges of capital structure studies. Some researches proof targeting behavior, while some others estimate random financial leverage. This study examines the leverage behavior based on four leverage measures for 108 companies in Tehran Stock Exchange over the observation period 1380–1393 (2001-2014). In this paper, we analyze four different models, including stationary target ratios model, time-varying target ratios model and target zone model to study the stochastic nature of leverage behavior. We apply simulation methods with leverage measures to evaluate the ability of random financing and a variety of leverage targeting models. Target leverage models with little or no emphasis on staying near a particular target provide a good explanation for leverage behavior. Target leverage models explain total book leverage more precise than other leverage measures.