Leader-Follower Relationship in Determining of the Capital Structure

Abstract

This study examines the relationship of the leader-follower relationship in determining the composition of the capital structure (CS) using the absolute cross-sectional dispersion (CSAD) method in terms of market growth and decline. The firms in each industry were divided into two categories of leaders and followers based on the criteria of profitability growth, profitability and market share. In the category of profitability growth in the machinery and equipment and cement lime gypsum industry in general, as well as in the basic metals and chemical industry (decline and growth period), pharmaceutical industry (decline period) and cement lime gypsum industry (growth period), The leader-follower relationship is not rejected. With the criterion of profitability in the same market conditions, non-metallic mineral and cement lime gypsum industry and taking into account the period of growth and decline in the food except sugar, chemical, non-metallic mineral and cement lime gypsum industry (growth and decline period), and automobiles and parts and electrical appliances (growth period) firms follow the industry leader. Based on the market share criterion, in the automobiles and parts industry in similar economic conditions and the basic metals and chemical industry (growth and decline period) and rubber and plastic industry and electrical appliances (growth period) in different economic market conditions, the hypothesis of a leader-follower relationship is not rejected. Therefore, firms' following to the industry leader can be considered as a determining factor in the capital structure of firms.

Keywords

• capital structure
• behavioral finance
• leader-follower relationship