The existence of herding behavior in determining the capital structure of the firm and industry

The purpose of this study is to investigate the existence of herd behavior of firms in each industry as well as industry relative to other industries in determining the capital structure.

Herd behavior is shown with a nonlinear relationship between the capital structure of firms and the industry capital structure and the method of absolute cross-sectional dispersion was used. Also, the herd behavior of other industries towards the capital structure of each industry was examined. The research period is from 2002 to 2020 and twelve industries have been studied.

The results showed that in the automobiles and parts industry, basic metals, food except sugar, chemical, electrical appliances and non-metallic minerals of firms compared to the median of the industry, there is herd behavior in the capital structure of firms. In addition, this behavior towards the automobiles and parts industry (5 industries), rubber and plastics (4 industries), food except sugar (3 industries), pharmaceutical, non-metallic minerals and tile-ceramics (2 industries), machinery and equipment, electrical appliances and metal ore mining (1 industry) were observed.

The result of research indicates that herd behavior can be considered as a determining factor in the structure of capital.

 Providing evidence on herd behavior and imitation and peer effect on the capital structure at the level of industry firms and also at the level of industries relative to each other as well as the development of behavioral finance literature in the corporate finance area in Iran, is the main contribution of this study.