The theory of capital structure offers two competing models of financing decisions. In the trade-off model, firms identify their optimal leverage by weighting the costs and benefits of debts. In the pecking order model, firms finance new investments first with retained earnings, then with debts, and finally with outside equity. The empirical literature provides conflicting assessments about how firms choose their capital structures. We investigate the effect of delayed variables and factors that affect firm's leverage changes. For this purpose, we gathered data from 164 firms in Tehran Stock Exchange, during 1379-1383 years. Using panel data regression model, our results indicate that firm's past profitability has strong influence on their market leverage, and this effect last for over two years. Also, firm's past financial deficits have strong influence on their book leverage, and this effect last for over two years. The effect of stock returns on book leverage, last only for over one year. The market-to-book ratios of assets have short-run effect on market leverage as well as book leverage.
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