Drivers of the Target Financial Leverage and Speed of Adjustment in Small and Medium-Sized Companies at Different Stages of Life Cycle

Document Type : Original Article

Author

Department of Management, Germi Branch, Islamic Azad University, Germi, Iran

Abstract

According to the results of recent studies, the main causes of companies’ failure are inadequate and inappropriate financing. Therefore, one of the key tasks of financial managers is to determine the best combination of the company's financial resources, or in other words, the target financial leverage. On the other hand, growth cycles are very useful for analyzing business cycles in countries that have experienced severe recession and boom, such as Iran. The purpose of this study is to investigate the drivers of the target financial leverage and speed of adjustment of financial leverage at different Stages of life cycle. The statistical population is small and medium sized companies active in Tehran Stock Exchange. The results indicate that for firms in the growth and maturing stages of their life cycle, profitability, firm size and tangible assets are stronger positive drivers for target leverage and when the company One stage of the life cycle goes to the next, the company slows down its gap with the target lever, and the speed of adjusting the optimal structure is reduced.

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