Abstract

Purpose: This study aims to identify, estimate, and analyze the factors influencing the speed of capital structure adjustment among firms listed on the Tehran Stock Exchange. Specifically, it focuses on the impact of firm-specific characteristics and macroeconomic variables on the rate at which companies adjust their capital structures.

Method: This study was employed a dynamic partial adjustment model with panel-simultaneous data, utilizing the generalized method of moments (GMM) for a reliable estimation of capital structure adjustment speed. The sample analyzed consists of 154 firms over a 10-year period from 2014 to 2023.

Results: The findings indicate a significant relationship between macroeconomic variables and firm characteristics with the speed of capital structure adjustment during the study period. Additionally, the results reveal that financial leverage tends to move more swiftly towards the firm's target leverage when influenced by changes in macroeconomic variables, compared to adjustments driven by changes in firm-specific characteristics.

Conclusion: Given that inflation and exchange rates continuing to rise, it is crucial to implement effective policies to mitigate this volatility, this requires not only greater transparency in government monetary policy, but also a commitment to consistent and appropriate implementation by policymakers.

Contribution: This research emphasizes the importance of factoring in broader economic contexts when developing financial policies for companies. It also sheds light on the complex dynamics of capital structure adjustments in response to varying economic factors.