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The Study of Firm Specific Determinants of Capital Structure: Evidence form Iranian Frims Listed on Tehran Stock Exchange

Saeedi, Hesamoddin | 2010

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 40988 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Zamani, Shiva
  7. Abstract:
  8. Since the seminal work of Modigliani and Miller, the basic question of whether a unique combination of debt and equity capital maximizes the firm value, and if so, what factors could influence a firm’s optimal capital structure have been the subject of frequent debate in the capital structure literature. Empirical work in this area has lagged behind the theoretical research, perhaps because the relevant firm attributes are expressed in terms of fairly abstract concepts that are not directly observable and furthermore capital structure decision-making is even more complicated when it is examined in an international context, particularly in developing countries where markets are characterized by controls and institutional constraints. Most of the literature seeking an association between the capital structure and the firm specific or industry characteristics has focused on the experience of developed economies. However, emerging markets, with many institutional differences, have rarely been the subject of research in this field. In this research we are examining whether the variables, proved to be correlated with firm financial leverage in developed markets, shows the same correlation in Iran or not, and if so, how strong the explanatory power of this set of variables is. We have analyzed the impact of seven firm specific determinants of size, profitability, growth opportunities, tangibility, non-debt tax shield, earning volatility and industry on the capital structure of Iranian manufacturing firms listed on Tehran stock exchange. The sample covers 116 firms and the analysis is based on the year-end observations of six consecutive years running from 1381-1386. Research methodology is based on multiple variable linear regressions accompanied by fixed coefficient and fix effect models. The results indicate that all the above mentioned variables have significant statistical relation with financial leverage. Variables of size, tangibility and growth opportunity reveal positive relation with financial leverage and variables of profitability, non-debt tax shield and earning volatility reveal the inverse relation with level of debt. Furthermore, the variables of profitability, tangibility and size have the most explanatory power among the variables. R-squared (coefficient of determination) of this study indicates high explanatory power of the proposed set of variables for the variance in the financial leverage of Iranian firms.

  9. Keywords:
  10. Capital Structure ; Tehran Stock Exchange ; Trade-off Theory ; Pecking Order Theory ; Financial Leverage

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