International Journal of Economy, Management and Social Sciences, 2(6) June 2013, Pages: 256-264

TI Journals

International Journal of Economy, Management and Social Sciences

ISSN
2306-7276

www.tijournals.com

Examining the Firm Age, Size and Asset Structure Effects on

Financial Leverage in the Firms Listed in Tehran Stock Exchange
Reza Zare 1, Farzad Farzanfar 2, Maryam Boroumand 3
1

Young Researchers Club, Darion Branch, Islamic Azad University, Darion, Iran.
M.A. in Accounting, Marvdasht Branch, Islamic Azad University,Marvdasht, Iran.

2,3

AR TIC LE INF O

AB STR AC T

Keywords:

This study examined the firm size, asset structure and age effects on financial leverage; in line with
this and by virtue of the most known theories presented in field of capital structure (Pecking Order
Theory and Tradeoff Theory) three factors namely firm size, asset structure and age have been
defined as the variables influencing financial leverage. In the next step the influence of these
factors was examined on financial leverage by virtue of different life cycles (Growth, maturity and
decline steps). That is why the data necessary for the study were gathered from 69 firms member of
Tehran stock exchange in 20012010. The gained evidences indicated that the firms financial
leverage is influenced by the three variables namely the firm age, size and asset structure in the
firms listed in Tehran stock exchange. Also the firms life cycle influences the managers decisions
to secure finance.

Financial leverage
Financial securing decisions
Life cycle

2013 Int. j. econ. manag. soc. sci. All rights reserved for TI Journals.

1.

Introduction

Our actual work environment is growing and very competitive so the firms should compete in different levels such as state and
international in order to survive and need financial sources to develop their operations through investment, but capital sources and their
usage should be defined well to enable the firm to be profitable and the managers are to define the finance securing sources and how to
benefit from them.
By virtue of modern financial theories a financial managers duties include the decisions concerning investment, financing and profit
division in a non-profit firm; the financial management decides in relation to these items to maximize shareholders profit and wealth; in
line with this the management should define where the investment should be namely what are the assets elements and from where.
Does a firm finance by debt, leverage creation or equity? However, the debt and leverage creation strategies should be reasonable to
maximize the shareholders and firms profitability and at the same time, prevent high bankruptcy costs on the firm namely the firm
sustains logic and reasonable risk by debt.
Considering different theories presented in relation to the capital structure it may be seen that no unique theory has been formed yet to solve
the capital structure enigma. However, the experimental researches findings have emphasized on some factors such as industry, firm size,
profitability, liquidity, commercial risk, dividend policy, fixed visible assets, tax considerations and growth and investment opportunities to
analyze the firms capital structure; and in this study we examine three factors namely age, size and asset structure on the capital structure.
The firm capital structure may be influenced by any step of the life cycle so in any step of the life there are different financial necessities.
By virtue of different finings (For example, Black, 1998, Adizes, 1989) a firms life cycle is divided into several periods. [9], [1]. In this
study the influence of the factors effective on financial leverage such as firm assets structure, size and age during growth, maturity and
decline periods were examined separately.

2.

Literature review

2.1. The theoretical principles of the study

2.1 .1 The managers way to decide by virtue of life cycle steps
This study is to examine the factors influencing financial leverage by virtue of the firms life cycle. Considering the role of the firms in
economics the financing to protect them in market and work is an important and essential discussion; on this basis considering the firms
decisions are different in any step of their life cycle the issue influences directly their investment opportunities costs and value in market
[5].

* Corresponding author.
Email address: zarereza20@gmail.com

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In this study we examined the decision way about financing firms in three different periods namely growth, maturity and decline ad surely
we decide differently in each period according to each period features. Also we describe briefly the factors relating financial leverage and
life cycle.
Considering there are different theories about the capital structure this study examined two known theories namely Tradeoff Theory and
Pecking Order Theory which are described briefly as follows:
Pecking Order Theory: Mostly the firms prefer this theory for their investment. By virtue of the theory the management prefers ready
money for investment in first of their activity and if ready money is not available, they use debt and finally benefit from external shares
[21].
By virtue of the theory in the first steps of their life cycle (Commencement and growth) the firms use debt strategy because of lack of
accumulated profit for investment, but they use the debt strategy less in maturity step because of profit increase and when they entered
into the decline step again they use the strategy more because of the accumulated profit decrease [22].
Tradeoff Theory: By virtue of this theory the firms are not able to benefit from the debt strategy because of high bankruptcy costs in
primary steps; in this step considering their low income the firms are not able to benefit from tax shield due to interest costs increase. The
firms are able to benefit from the shield in the growth and maturity steps because of foreseeable income increase and finally they use debt
strategy less in the decline step for finance because of income decrease [22].
So by virtue of above descriptions about the two theories it is clear the relation between the capital structure and the life cycle steps.
Considering this study is to examine the factors influencing financial leverage by virtue of the life cycles steps of the firm it is necessary to
examine why the managers decisions way differs according to the life cycle and also which factors relate these two variables.
Some factors such as data asymmetry, firm ability to create ready money, risk and growth opportunities may influence the relation between
capital structure and life cycle steps which are certainly different in different life cycle steps because of the firm financial necessities.
The firms encounter more difficulties in relation to data asymmetry in primary steps of life cycle (Growth step). In this step has more
opportunities to grow and the firm should have special capital structure and is obliged to benefit from special strategies to finance in order
to reach higher steps in the life cycle [18].
The success of such firms depends on finance necessary to invest. Considering data asymmetry problems for these firms they are limited in
benefiting from external sources(Debt) to finance. Thus, they prefer internal sources (Shares distribution) to finance. Having solved the data
asymmetry problem and by virtue of the data transparency the firms enter into new step of the life cycle (Maturity) facilitating the debt use
[7].
So the data asymmetry problem may be one of the factors relating financial leverage and life cycle of a firm and this problem is more
prominent in primary steps of the life cycle and if solved, the firm is promoted to next steps. So financial leverage use increase the firm
life.
The firms potential to create ready money is another factor discussable in field of the relation between financial leverage and life cycle.
In primary steps of their life cycle the firms are not able to create ready money necessary to invest. In fact, in this step the firms have
negative liquidity and benefit from internal sources to finance. They prefer to distribute the shares to debt use in order to finance. Having
access to visible assets and positive liquidity the firms may benefit from such assets as gage to finance through debt and make possible to
go to next step of the life cycle(Maturity) [7].
Berger and Udell (1993) examined the relation between financial leverage and life cycle by virtue of Tradeoff Theory. They discussed
about the relation between business and financial risks and believe if a firms life cycle steps increase, the business risk (Purchase and sale
risk) decreases because of sale increase and financial risk increases because of more debt use to finance. [6].
2.1 .2 Life cycle steps
firm life cycle is one of the important factors to define the capital structure. In accountancy field some researchers have defined three steps
namely growth, maturity and decline to describe the life cycle of the firms. The capital structure is different in each step depending on its
features which are described briefly as follows:.
Growth step: The firms have considerable products in rapid growth step and after this step the firms competitors increase and the shares
rate becomes fixed in the market and the firms enter into a fixed step of the growth [9].
maturing step: The firms are more experienced and stable and with high profitability and liquidity [11]. The management is successful in
operational and financial view. The market shares and profit rate are stable in this step [9].
Decline step: The firms are disappearing in this step and are unable to produce enough to finance themselves and go to complete
bankruptcy. Instead of be active by market potentials they try to survive through artificial interferers and finally they are swallowed by the
competitors [17].

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2.1.3 Financial leverage

Financial leverage means Financing by fixed costs (Such as debt and preferred shares). The financial leverage is used in the hope of
increasing the usual shares return. The leverage is useful until the firm uses its gained funds with fixed costs (The funds gained by the debts
with fixed costs or preferred shares with fixed profit) for something with return more than fixed costs. The leverage is representative of the
debt use rate in the firm capital structure [5].
The shareholders rights mean Everything belonging to the shareholders such as usual shares and accumulated profit and debts are
generally the firm undertakings to others. The ratio of debts to total investment is debt ratio or financial leverage.
Financial leverage= Debts / Total assets (Investments)
When a firm borrows (Takes) a loan, it increases its financial leverage and then the risk increases. The financial leverage decreases with
new investment and naturally its risk decreases, too. So each change in the financial leverage leads to a create a potential to gain positive or
negative results [5].
The managers should decide in line with a equilibrium between the debts and shareholders rights. By virtue of aforesaid maters the main
matter of this study is to examine the firm life cycle by financial leverage.
2.2 Study History
Bala and Mateus (2002) did another study about the capital structure in Hungry in 19951999. They used the regression model to test the
hypotheses. Their findings showed that there is a direct relation between the firm size and the financial leverage. [4].
Faulkender and Petersen (2002) found that the leverage ratio is less in big firms. Of other important studies the Coeurderoy (2002) is
mentionable who examined the relation between the firm size and the leverage in some European countries and concluded that there is a
relation between the firm size and capital structure in the European countries.[16].
Vidhan et al. (2002) examined the relation between the firm growth opportunities and its debt policy in Hong Kong foreign exchange in
19951980. They used crosssectional regression to test the hypotheses and concluded that there is a positive relation between the growth
opportunities for the firms listed in the Hong Kong foreign exchange and the financial leverage (Debts). [29].
Having studies capital structure theories and experimental findings concerning seven countries namely Canada, Denmak, Germany, Italy,
Sweden, Great Britain and U.S.A. Chen and Park (2006) found that the visible assets and size have direct relation with the leverage and
profitability has negative relation with the leverage. The evidences from the seven countries are in harmonization with the findings from the
usual theories relating to capital structure such as Pecking Order Theory and Tradeoff Theory. [13].
Eriotis (2007) examined the effect of capital structure in 129 firms in Greece transactions market in 19972001. He selected the capital
structure factors on the basis of the theories proposed in field of the capital structure. The findings showed that the firm debt ratio has
negative relation with current ration and interest coverage ratio and inversely, it has positive relation with the firm size. [15].
Zhang and Kanazaki tested the Tradeoff Theory in comparison with the Pecking Order Theory. They did their studies on 1,325 nonfinancial firms in Japan in 2002-2006. Their experimental findings showed that both models had insufficiencies and also the Tradeoff
Theory is influenced by several factors such as negative relation factors between profitability and financial leverage in the firm. [32].
Seppa (2008) examined the capital structure decisions in non-financial firms and concluded that the capital structure decisions have been
motivated in the non-financial firms by the Pecking Order Theory and the evidences show that favorable capital structure selection has been
remained weak in the long term. Powerful Pecking Order Theory behaviour makes the difference between big and small firms
considerable. [25].
Viviani (2008) studies experimentally the drinks industry firms in relation to the capital structure factors in France and states that the
Pecking Order Theory is appropriate to analyze the financial leverage in drinks firms in France. [28].
Tarek et al. (2008) studied the relation with capital structure factors and asymmetric systematic risk categories in Egypt and grouped the
firms according to systematic risk changes as follows: With (1) high risk (2) Medium risk and (3) low risk and concluded that longterm
debt is the source to finance all systematic risk categories and the medium risk firms adapt their longterm debt on the basis of industry
index debt and finance through longterm debt and also they are relatively influenced by essential suppositions of free liquidity and the
high risk firms are influenced by the Pecking Order Theory. [26].
Karadeniz et al. (2009) examined the factors effective on construction firms capital structure decisions in Istanbul transaction market in
19942006. They selected the factors effective on the capital structure on the basis of the Tradeoff and Pecking Order theories Their
findings indicated that the effective tax rate, assets structure and assets return have negative relation with the debt rate and free liquidity
nondebt tax coverage, investment growth opportunity and firm size have no relation with debt rate in the country and generally the
findings indicate the Pecking Order theory. [19].
Serrasqueiro et al. (2009) examined the capital structure of the Portuguese firms . They selected 41 firms as sample in 19912001 and
found that the transaction costs are effective to attain the debts in the Portuguese firms . Also the visible assets and firm size are of the
factors making the debts reach the favorable level in future. They stated that the favorable capital structure decisions may be influenced by
the two Tradeoff and Pecking Order theories in the Portuguese firms[24].

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La Rocca et al. (2011) examined the decisions to finance small and big firms and also discussed about the factors effective on the capital
structure decisions in consideration of data asymmetric and firms features problems and their financial needs in each step of the life cycle.
The findings showed that the firms tend to benefit from special strategies to finance and have a hierarchy to decide to finance to develop in
their life cycle in the focused-bank countries. Opposed to usual wise of debt is used as a device to do business in primary steps and internal
capitals replace gradually the debts in the maturity step. Also they consider the Pecking Order Theory appropriate to the firms reached
fixed business.[20].
2.3 Hypotheses Development
Following hypotheses are proposed by virtue of the researchers goals and the issue to be tested:
H1: There is a significant relation between firm age and financial leverage level.
firm age is usually known as a standard criterion in the capital structure model. A firm tries to use financial leverage more over time in
order to continue business in the market and increase its capacity.
H2: There is a significant relation between firm size and financial leverage level.
Size plays important role in defining the capital structure of a firm. The big firms have high bankruptcy potential because their business is
more varied than the small ones [2].By virtue of tradeoff theory the bigger firms have higher leverage because their debt cost is lower than
the small ones. By virtue of the Whiteds (1992) study the small firms have more problems to attain long term debts because their growth
opportunities are usually more than their assets. [31]. Berryman (1982) added that there is a negative relation between firm size and
bankruptcy probability. So the small firms have problem to attain debt sources. [8].
Titman and Wessels (1988) reported a negative relation between firm size and the leverage. They reasoned that the smaller firms need to
finance through debt more than new shares distribution because the costs of the latter are more than the former for them in comparison to
the bigger firms[27]. In this study following Beck and Levine (2002) in this study investment logarithm (Insize) in the market was used as
an approximate for the firm size. It is expected that there would be a positive relation between firm size and debts level. [5].
H3: There is a significant relation between asset structure and financial leverage level.
The asset structure is an important index to take credit. Considering the banks demand some gage to give their facilities the asset structure
has a negative relation with short term debt; it means the small firms tend to use short term debts to finance because such debts need not
any gage.
The firms with visible assets usually have bigger liquidation value. These firms have higher financial leverage because their debts interest
rate is lower and theses debts are kept by the assets [10]. If there are durable assets to present gage, it may easily use debt to finance [30].

3.

Study method

Total debt:
In this study the model proposed by Cassar and Holmes (2003) was used to measure total debts gained from following equation. [12]. The
model is as follows:
Equation (1)
Lev = 0 + 1AGEit + 2SIZE it + 3 ASTit + e
Lev=a+b1size+b2DUM1*size+b3DUM2*size+b4DUM3*size+e
Lev= a+b1age+b2DUM1*age+b3DUM2*age+b4DUM3*age+e
Lev=a+b1asset+b2DUM1*asset+b3DUM2*asset+b4DUM3*asset+e
where:
Lev: Financial leverage: Total debts divided by total assets is Leverage.
AGE: firm age: The firm activities years are used to measure this variable.
SIZE: firm size: The firm shares market value logarithm is used to measure this variable.
AST: firm assets structure: It is the ratio of the fixed assets ratio to total assets.
firm life cycle:
In their study Antony and Ramesh (1992) used four variables: sale growth, capital costs, divisible profit ratio and firm age to group the
firms into life cycles steps. [3].
In the study above four variables were used according to Parks and Chens methodology to group the firms into the growth, maturity and
decline steps as follows[23]:
1 Primarily the sale growth, cost of capital, divisible profit proportion and age of the firms are calculated for each firm.
2The firms year is divided into five categories on the basis of each variable of the four ones and according to the statistical category from
one to five by virtue of the following table.
3Then a composite score is gained for each firm year and classified by virtue of following conditions in one of the terms(Growth,
maturing or decline):

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A) If total score is 1620, it is in growth term.

B) If total score is 915, it is in maturing term.
C) If total score is 48, it is in decline term.
Table 1
Categories
First
Second
Third
Fourth
Fifth

firm age

Sale growth(SG)

Cost of capital(CE)

Divisible profit(DPR)

5
4
3
2
1

1
2
3
4
5

1
2
3
4
5

5
4
3
2
1

Where:
SGit = [ 1 (Saleit / Saleit-1) ] x 100
DPRit = (DPSit / EPS it) x 100
CEit = (Stable assets during the term increase(Decrease) / firm market value) x 100
Sale = Sale income
DPS = Divisible profit of each share
EPS = Profit of each share
AGE = The difference of t year and the year when the firm was established.
Here the life cycle was defined in three forms of growth, maturing and decline (The appearance term was ignored) because the transaction
(Purchase and sale) was inactive or the new firms did not participated in the Tehran stock exchange.

4.

Data Analysis

Study variables descriptive statistics:

The study variables descriptive statistics are shown in Table 2.
Table 2. Study variables descriptive statistics
study variables

mean

middle

minimum

maximum

standard deviation

financial leverage
firm age
firm size
firm assets structure
Cash profit payment percent
sale growth percent
capital costs percent

0.730
35.167
26.347
0.351
61.559
21.179
- 0.225

0.697
38.000
26.139
0.306
68.745
11.949
0.011

0.070
4.000
22.530
0.040
- 500.000
- 59.090
- 181.920

23.580
59.000
31.020
0.0930
172.730
1280.470
15.210

0.966
13.014
1.615
0.194
38.583
59.107
7.001

The findings from the study hypotheses test:

The dependent variable namely financial leverage with the independent ones (firm age, firm size, firm assets structure) were examined to
test the primary study hypotheses. The findings from regression model are shown in the Tables 3 and 4. As you see in Table 3 the t
statistic rate and the significance rate relating to it state that the measured regression model is generally significant. In the model the
definition coefficient is 0.389 namely the 38.90 percent of the dependent variable changes may be justified by the independent variables.
The findings from examining wrong sentences autocorrelation by using the DurbinWatson statistic showed the lack of autocorrelation
between the model errors.
Table 3. Findings from examining generally the model- study hypotheses
R

R2

F statistic

F statistic significance

Durbin- Watson

0.389

0.384

72.453

0.000

1.909

The findings from examining the model variables coefficients are presented in the Table 4. In this section the study hypotheses are
examined and tested by t statistic and significance rate of each variable.
Table 4. Findings from examining the partial coefficients of the model-study hypotheses
variables
firm age
firm size
firm assets structure
fixed rate

coefficients

standard deviation coefficients

t statistic

significance

0.013
0.289
1.058
-7.103

0.004
0.031
0.255
0.776

3.533
9.243
4.149
-9.153

0.000
0.000
0.000
0.000

Thus the equation is as follows:

Lev= -7.103+0.013Age+0.289Size+1.058Asset

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As you see in Table 4 the t statistic rate and the significance rate computed for the study variables state that they (firm age, size, assets
structure) have a positive and significant relation with the financial leverage.
The findings from examining the effect of life cycle steps (Growth, maturity and decline) on the relation between firm age and financial
leverage:
In this test we examined the effect of the independent variable namely firm age on the dependent variable namely financial leverage in each
life cycle step (Growth, maturity and decline) separately. The findings from the regression model measurement are shown in the Tables 5
and 6.
Table 5. Findings from examining generally the model-H1 by considering the life cycle effect
R2
0.646

R
0.648

F statistic
315.942

F statistic significance
0.000

Durbin- Watson
1.968

As you see in Table 5 the F statistic and significance related to the statistic state that the measured regression model is generally
significant. Also in the model the definition coefficient is 0.648 namely the 64.80 percent of the dependent variable changes may be
justified by the independent variables. The findings from examining wrong sentences autocorrelation by using the DurbinWatson statistic
showed the lack of autocorrelation between the model errors.
The findings from examining the model variables coefficients are presented in the Table 6. As you see in Table 6 the coefficient and t
statistic and significance measured for the study variables indicate that the firm age and its relation with financial leverage in the growth,
maturity and decline steps have a significant relation in the studied firms . So having considered the significant and positive effect of the
life cycle steps and coefficients of each interactional variable in sum it can be said that firm age has a positive and significant relation with
the financial leverage.
Table 6. Findings from examining the partial coefficients of the model-H1 by considering the life cycle effect
variables
firm age
interaction between firm growth and firm age
interaction between firm maturity and firm age
interaction between firm decline and firm age
fixed rate

coefficients

standard deviation coefficients

t statistic

significance

0.083
0.084
0.101
0.094
0.301

0.004
0.003
0.003
0.003
0.099

19.320
28.079
31.603
29.310
3.027

0.000
0.000
0.000
0.000
0.003

Also the variables coefficients of the interactions between firm growth and age, maturity and age and decline and age were compared two
by two by Wald Test in order to compare the same effect of the life cycle steps and the findings are shown in Table 7.
Table 7. Findings from examining comparing variables coefficients in life cycle steps
the steps of life cycle
comparison
comparing the variable
coefficient of the interaction
between firm growth and
firm age and the variable of
the interaction between firm
maturity and firm age
comparing the variable
coefficient of the interaction
between firm growth and
firm age and the variable of
the interaction between firm
decline and firm age
comparing the variable
coefficient of the interaction
between firm maturity and
firm age and the variable of
the interaction between firm
decline and firm age.

type of the statistic

the statistic rate

freedom degree

significance

F statistic

14.141

(1.685)

0.000

Chi-square Test

14.141

0.000

F statistic

8.186

(1.685)

0.020

Chi-square Test

8.617

0.020

F statistic

8.250

(1.685)

0.004

Chi-square Test

8.250

0.004

As you see by virtue of the Wald Test the age effect on the financial leverage is different in the steps (Growth, maturity and decline).
Lev=(1)+(2)*Age+(3)*DUM1Age+(4)*DUM2Age+(5)*DUM3Age
(3): Growth step.
(4): Maturity step.
(5): Decline step.
By virtue of first Wald Test comparing growth and maturity steps and the test result namely: (3)-(4)=-0/0097, it may conclude that the
age variable effect in maturity is more on the financial leverage than in growth step.
By virtue of second Wald Test comparing growth and maturity steps and the test result namely: (4)-(5)=0/0071, it may conclude that
the age variable effect in maturity is more on the financial leverage than in decline step.
The findings from examining the effect of life cycle steps (growth, maturity and decline) on the relation firm size and financial leverage:

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In this test we examined the effect of independent variable namely firm size on the dependent variable financial leverage in each life cycle
step (Growth, maturity and decline) separately. The findings from the regression model measurement are shown in the Tables 8 and 9.
As you see in Table 8 the F statistic rate and the significance rate relating to it state that the measured regression model is generally
significant. Also in the model the definition coefficient is 0.748 namely the 74.80 percent of the dependent variable changes may be
justified by the independent variables. The findings from examining wrong sentences autocorrelation by using the DurbinWatson statistic
showed the lack of autocorrelation between the model errors.
Table 8. Findings from examining generally the model-study H2 by considering the effect of the life cycle
R

R2

F statistic

F statistic significance

Durbin- Watson

0.748

0.746

508.179

0.000

1.909

The findings from examining the model variables coefficients are presented in the Table 9. As you see in Table 9 the coefficient and t
statistic and significance measured for the study variables indicate that the firm size and the relation between this variable and financial
leverage in growth, maturity and decline steps have a significant relation in the studies firms. So having considered the significant and
positive effect of the life cycle steps and coefficients of each interactional variable in sum it can be said that firm age has a positive and
significant relation with the financial leverage.
Table 9. Findings from examining the partial coefficients of the model-study H2, by considering the effect of the life cycle
variables
firm size
interaction between firm size and growth opportunities
interaction between firm size and maturity
interaction between firm decline and firm size
fixed rate

coefficients

standard deviation coefficients

t statistic

significance

0.135
0.144
0.152
0.170
0.286

0.021
0.004
0.004
0.004
0.506

6.386
34.204
36.880
37.053
0565

0.000
0.000
0.000
0.000
0.572

Also the variables coefficients of the interactions between firm growth and size, maturity and size and decline and size were compared two
by two by Wald Test in order to compare the same effect of the life cycle steps and the findings are shown in Table 10.
Table 10. Findings from examining comparing variables coefficients in life cycle steps
the steps of life cycle
comparison
comparing the variable
coefficient of the interaction
between firm growth and
firm size and the variable of
the interaction between firm
maturity and firm size
comparing the variable
coefficient of the interaction
between firm growth and
firm size and the variable of
the interaction between firm
decline and firm size
comparing the variable
coefficient of the interaction
between firm maturity and
firm size and the variable of
the interaction between firm
decline and firm size.

type of the statistic

the statistic rate

freedom degree

significance

F statistic

8.914

(1.685)

0.004

Chi-square Test

8.914

0.004

F statistic

10.710

(1.685)

0.015

Chi-square Test

10.710

0.014

F statistic

9.237

(1.685)

0.033

Chi-square Test

9.237

0.036

As you see by virtue of the findings from Wald Test the effect of size on the financial leverage is different in different life cycle steps.
Lev=(1)+(2)*Size+(3)*DUM1Size+(4)*DUM2Size+(5)*DUM3Siz
By virtue of first Wald Test comparing growth and maturity steps and the test result namely: (3)-(4)=-0/0077, it may conclude that the
size variable effect in maturity is more on the financial leverage than in growth step.
By virtue of second Wald Test comparing growth and maturity steps and the test result namely: (3)-(5)=0/0092, it may conclude that
the size variable effect in decline is more on the financial leverage than in growth step.
By virtue of second Wald Test comparing maturity and decline steps and the test result namely: (4)-(5)=0/0054, it may conclude that
the size variable effect in decline is more on the financial leverage than in maturity step.
The findings from examining the effect of life cycle steps (growth, maturity and decline) on the relation firm assets structure and financial
leverage:
In this test we examined the effect of independent variable namely firm assets structure on the dependent variable financial leverage in each
life cycle step (Growth, maturity and decline) separately. The findings from the regression model measurement are shown in the Tables 11
and 12.

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Internat ional Jour nal of Economy, Mana ge ment and Social Sciences , 2(6) June 2013

Table 11. Findings from examining generally the model-study H3 by considering the effect of the life cycle
R

R2

F statistic

F statistic significance

Durbin- Watson

0.531

0.529

194.355

0.000

1.897

As you see in Table 11 the F statistic rate and the significance rate relating to it state that the measured regression model is generally
significant. Also in the model the definition coefficient is 0.531 namely the 53.10 percent of the dependent variable changes may be
justified by the independent variables. The findings from examining wrong sentences autocorrelation by using the DurbinWatson statistic
showed the lack of autocorrelation between the model errors.
The findings from examining the model variables coefficients are presented in the Table 12. As you see in Table 12 the coefficient and t
statistic and significance measured for the study variables indicate that the firm assets structure and the relation between this variable and
financial leverage in growth, maturity and decline steps have a significant relation in the studies firms . So having considered the significant
and positive effect of the life cycle steps and coefficients of each interactional variable in sum it can be said that firm assets structure has a
positive and significant relation with the financial leverage.
Findings from examining the partial coefficients of the model, H3 by considering the life cycle effect, firm assets structure, interaction
between firm growth and assets structure, interaction between firm maturity and assets structure, interaction between firm decline and
assets structure, fixed rate.
Table 12. Findings from examining the partial coefficients of the model-H3 by considering the life cycle effect
variables

coefficients

standard deviation coefficients

t statistic

significance

firm assets structure

interaction between firm growth and assets structure
interaction between firm maturity and assets structure
interaction between firm decline and assets structure
fixed rate

3.671
3.087
4.661
5.554
0.373

0.356
0.205
0.254
0.258
0.085

10.320
15.426
18.321
21.545
4.355

0.000
0.000
0.000
0.000
0.000

Also the variables coefficients of the interactions between firm growth and assets structure, maturity and assets structure and decline and
assets structure were compared two by two by Wald Test in order to compare the same effect of the life cycle steps and the findings are
shown in Table 13.
Table 13. Findings from examining comparing variables coefficients in life cycle steps
the steps of life cycle
comparison
comparing the variable
coefficient of the interaction
between firm growth and
assets structure and the
variable of the interaction
between firm maturity and
assets structure
comparing the variable
coefficient of the interaction
between firm growth and
assets structure and the
variable of the interaction
between firm decline and
assets structure
comparing the variable
coefficient of the interaction
between firm maturity and
assets structure and the
variable of the interaction
between firm decline and
assets structure

type of the statistic

the statistic rate

freedom degree

significance

F statistic

6.297

(1.685)

0.012

Chi-square Test

6.297

0.012

F statistic

33.897

(1.685)

0.000

Chi-square Test

33.897

0.000

F statistic

13.319

(1.685)

0.000

Chi-square Test

13.319

0.000

As you see by virtue of the Wald Test the assets structure effect on the financial leverage is different in the steps (Growth, maturity and
decline).
Lev=(1)+(2)*Asset+(3)*DUM1Asset+(4)*DUM2Asset+(5)*DUM3Asset
By virtue of first Wald Test comparing growth and maturity steps and the test result namely:(3)-(4)=-0/5742, it may conclude that the
assets structure variable effect in maturity is more on the debts than in growth step.
By virtue of second Wald Test comparing growth and decline steps and the test result namely: (3)-(5)=1/4676, it may conclude that the
assets structure variable effect in decline is more on the debts than in growth step.
By virtue of third Wald Test comparing maturity and decline steps and the test result namely: (4)-(5)=0/8933, it may conclude that the
assets structure variable effect in decline is more on the debts than in maturity step.

Reza Zare et al.

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Int ernational Journal of Ec onomy, Mana ge me nt and Soci al Sc iences , 2(6) June 2013

5.

Conclusion

By virtue of the conducted regression and Wald tests it may conclude that there is a significant relation between the independent variables
(Age, size and assets structure) and the dependent one (Financial leverage). Considering this study is to examine the factors effective on
financial leverage with consideration of the firms life cycles so according to the done studies La Rocca et al, (2011) [20], and Frielinghause
et al (2005) [17] in field of the life cycle effect on the firm finance policies and considering the firms finance policies originated from a
series of factors such as independent variables it may conclude that the firms life cycle may be an effective factor on the relation between
these variables (As a device to finance) and financial leverage.

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