The Effect of Economic Uncertainty and Investment Increase on the Financial Leverage Adjustment Speed

Document Type : Original Article

Authors

1 Associate professor of accounting,university of Isfahan, Isfahan,Iran

2 Accounting Department , Faculty of Administrative Sciences and Economics, University of Isfahan, Isfahan, Iran

10.22108/far.2024.140909.2038

Abstract

Abstract

One of the goals of firms is to optimize their capital structure. Due to transaction costs, the actual capital structure is always deviated from the optimal and cannot be immediately adjusted. Therefore, examining the factors affecting the financial leverage adjustment speed can be important. The aim of this research is to investigate the effect of economic uncertainty and investment increase on the financial leverage adjustment speed. For hypothesis testing, a sample of 130 companies listed on the Tehran Stock Exchange during the period 2016-2021 was selected, and hypothesis testing was carried out using multiple regression and panel data. The results of hypothesis testing show that economic uncertainty has a positive and significant effect on the financial leverage adjustment speed in firms with excessive financial leverage, but this effect is not significant in firms with lower financial leverage. Additionally, firms with excessive financial leverage have a slower rate of leverage adjustment during periods of investment increase than during normal periods. However, investment increase has no effect on the financial leverage adjustment speed in firms with lower financial leverage. Moreover, the results show that in conditions of investment increase, firms with excessive financial leverage and low economic uncertainty have a leverage adjustment speed close to zero, while economic uncertainty has no effect on the financial leverage adjustment speed in firms with lower financial leverage during periods of investment increase.

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Articles in Press, Accepted Manuscript
Available Online from 15 May 2024
  • Receive Date: 05 March 2024
  • Revise Date: 01 May 2024
  • Accept Date: 15 May 2024