Explaining the role of financial leverage speed of adjustment (SOA) during the firm life cycle

Document Type : Research Paper


Department of Economics and Accounting, Central Tehran Branch, Islamic Azad University, Tehran, Iran


This paper analyzes differences in speed of adjustment (SOA) across three life cycle stages of European listed firms: introduction, growth, maturity, decline, and fall. Dickenson's model based on cash flow has been used to divide different periods. For this purpose, the role of four determinants of profitability and intangible assets, growth opportunities, and size on SOA was investigated using the GMM (generalized torque) method. For this purpose, 153 firms listed firms on the Tehran Stock Exchange in the ten years 2009-2019 were selected, and data were analyzed by Stata and Eviews software. The results do not support by trade-off theory (TOT) and pecking order theory (POT) because according to these theories, the SOA of financial leverage is not completed during different stages of the life cycle. Higher speed in the introduction stage provides a different analysis than the growth stage. In addition, results show a lower increase in costs for firms that change from growth to maturity than for firms that change from introduction to growth.


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Volume 12, Issue 2
November 2021
Pages 1463-1475
  • Receive Date: 10 April 2021
  • Revise Date: 07 May 2021
  • Accept Date: 17 June 2021