Speed of adjustment

Information opacity leads to information asymmetry. In this situation, in providing their own financial needs, firms face limitations and inevitably provide their financial needs from the debt market by signalling private information to it. In addition, information opacity affects the leverage adjustment speed. This research investigates the effect of information opacity on deviation from target leverage and its’ adjustment speed during 2003 - 2017 in 131 firms listed in Tehran Stock Exchange. To estimate the research models, we use the regression analysis with panel data approach, the approach to control the effects of years and industries and the generalized method of moments with system estimator (system GMM). The research results show that the increase in information opacity increases (decreases) the positive (negative) deviation from target leverage. Also, research findings indicate that the increase in information opacity decreases the adjustment speed.

This study examines whether the firms’ leverage adjustment speed is influenced by real and accrual-based earnings manipulation over the period 2006-2019. We find evidence suggesting that the leverage adjustment speed in firms with a higher level of real and accrual-based earnings manipulation is slower than that of other firms. Specifically, we show that under-levered (over-levered) firms with a higher level of earnings manipulation tend to adjust their actual leverage toward an optimal level, faster (slower) than that of other firms. These results are robust to different metrics for real and accrual-based earnings management, an alternative set of leverage determinants, alternative sample periods, and various estimation methods.