Leverage Mean-Reversion and Asymmetry of Speed Adjustment of ‎Capital Structure‎

This research has investigated the effect of deviation from target leverage and financial deficit/surplus on the corporate behavior in leverage adjustment by considering the possibility of changing assets. Recent studies have shown that leverage, regardless of financing policies, tends to mean. This phenomenon which is called mechanical mean-reversion affects the calculated speed of adjustment. This study examines the effect of leverage mean-reversion on leverage adjustment speed. A sample composed of 155 firms listed in Tehran Stock Exchange (TSE) investigated for years 1384 to 1394. Generalized method of moment regression is used to examine the effect of deviation from target leverage and financial deficit/ surplus on speed of adjustment and bootstrap method is applied for determining the effect of leverage mean reversion. Our results show that firms that are at the top of target leverage and face financial deficit are more likely to adjust their capital structure compared to other companies. The results also show that eliminating the effect of mean-reversion of leverage reduce the leverage adjustment speed.