The Effect of Deviation from the Optimal Capital Structure and Real Interest Rate on the Speed of Capital Structure Adjustment

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Fahmidevahdat, Mohammad Reza | 2024

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Type of Document: M.Sc. Thesis
Language: Farsi
Document No: 57534 (44)
University: Sharif University of Technology
Department: Management and Economics
Advisor(s): Ebrahimnejad, Ali
Abstract:
The capital structure of a firm significantly impacts its risk. Various theories have attempted to model the behavior of firms, with three of the most important being the Static Trade-Off Theory, the Pecking Order Theory, and the Market Timing Theory. In this study, using the Static Trade-Off Theory and the partial adjustment method, the effect of the real interest rate and the direction of deviation from the optimal capital structure on the speed of capital structure adjustment to the optimal leverage ratio was examined. The study data includes financial statements of non-financial firms in the Iranian capital market from 2002 to 2022. The results show that when a firm significantly deviates from its optimal capital structure, it adjusts its capital structure more quickly compared to when the real interest rate is negative. Stability tests also confirm the accuracy and robustness of the results
Keywords:
Capital Structure ; Tradeoff Theory ; Negative Real Interest Rate ; Optimal Leverage Ratio ; Companies