Capital Structure Adjustment Speed and the Effect of Boom and Recession on that: Evidence from Tehran Stock Exchange Listed Companies

Document Type : Research Paper


1 Ph.D. Department of Finance Management, Faculty of Management, Tehran North Branch, Islamic Azad University, Tehran, Iran.

2 Associate Prof., Department of Accounting, Faculty of Management, Tehran North Branch, Islamic Azad University, Tehran, Iran.

3 Assistant Prof., Department of Accounting, Faculty of Management, Tehran North Branch, Islamic Azad University, Tehran, Iran.


Objective: This study is aimed at measuring how fast adjustments are made on capital structures, for various industries, and investigating the impact of macroeconomic conditions, in terms of recession and boom, between 2011 and 2017.
Methods: In this research, target capital structure has been calculated based on the concept of debt capacity. Variables including market excess return and real gross domestic product (real GDP) have been selected as a proxy for financial sector and real sector to measure economic status. Hodrick-Prescott filter has been used to determine the periods of boom and recession.
Results: The speed of capital structure adjustment (depending on its sign and magnitude), could be classified into: 1) approaching, 2) moving away, 3) approaching and then moving away from the targeted capital structure. The results show that the capital structure of each year is adjusted toward the target. The boom and recession of the financial sector and real economy have no effect on the capital structure adjustment speed. Subsequent studies showed that the capital structure in the years 2011, 2012, 2013, 2016 and 2017 for various  industries, including of mining, electrical, computer, engineering, non-metallic minerals, refineries and petrochemicals, pharmaceuticals and metals, have been approaching the target.
Conclusion: Since the speed of adjustment of the companies is between 0 and 1, the capital structure of each year is approaching the target capital structure. Investigating the impact of boom and recession of sectors also showed that the macroeconomic environment had no effect on adjusting the capital structure of companies.


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