The Role of Competition and Corporate Governance on the Speed of Adjustment of Financial Leverage in the Capital Market

The purpose of this study is to investigate the role of competition and corporate governance on the adjustment speedoffinancial leverage in the capital market. In this regard, a sample consisted of 175 firms listed on the Tehran Stock Exchange during the five-year period (2011-2015) were selected. The mentioned firms first based on the Herfindahl-Hirschman Index (HHI) were dividedinto two generalgroups (firms with high and lowcompetition. Afterward each of them, based on corporate governance index, was divided into two sub-groups (strong and weak corporate governance). Then,the adjustment speed offinancial leverage financial leverage was fitted in all four portfolios and the estimated results were compared. The multivariate regression analysis using panel data was used to test the hypothesis.The results indicatedthat the considered firms in all four portfoliosmoved toward leverages goals by different speeds. But, the cost of these adjustmentsdid not permit managers changedthe ratio of financial leverages, under  competitioncondition. The lag ofthe adjustmentspeed of financial leverage and the lag of on time change in the financial leverageharmed management.Indeed, market competitionwas caused the management weakness problem was aggravated.