The mechanical mean reversion of leverage ratios, earning acceleration strategy and price acceleration returns

Returning the leverage to the mean despite the decisions to adjust the company's financial leverage is an obstacle to achieving the right choice of the optimal leverage, which can affect the future earning ability growth and prices of companies. Therefore, the main purpose of this study is to investigate the effect of the phenomenon of mechanical mean reversion of leverage ratios on earning acceleration strategy and price acceleration returns. The variable measurement of the mechanical mean reversion of leverage ratios is done using the bootstrap simulation method. For this purpose, a sample consisting of 1248 years-listed companies on the Tehran Stock Exchange during the years 1387-1388 has been studied using multivariate regression. In order to analyze the data and test the research hypotheses, R software and Ives software were used. The results showed that increasing the phenomenon of leverage reversion to the mean reduces the acceleration of earnings and the phenomenon of mechanical reversion of leverage to the mean can be confirmed for Iranian companies. The results also showed that reducing the phenomenon of mean mechanical reversion to the leverage can lead to price changes in the time horizon of 3 and 6 months; However, in a one-year period, the acceleration of the price is not effective in obtaining additional returns.