The Effect of Firm Financial Position and Industry Characteristics on Capital Structure Adjustment

This study investigates the influence of deficit and surplus and then the effect of industry characteristics, including industry concentration, industry munificence and industry dynamism on the capital structure adjustment. Results may be useful to distinguish main reasons of financing decisions in firms with same deficit/surplus and same industry characteristics. Listed companies in Tehran Stock Exchange were investigated from 2006 to 2016. Deficit and surplus, industry concentration and industry munificence have no effect on capital structure adjustments separately. In both high and low dynamism industries, firms tend to increase their debt. Firms with surplus and debt well below/above target are likely to reduce their debt compared to other firms. In high and low concentrated industries, firms with debt well below target are likely to reduce their debt. In high (low) munificent industries, firms with debt well below target, are more likely to adjust their debt downwards (upwards). Firms in less dynamic industries (More stable), whose debt is below the target, rapidly adjust their debt downwards.