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Capital Structure Impact on the Performance of Listed Companies in the Tehran Stock Exchange

Rashidkhani, Amir Reza | 2022

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 54966 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Hajizadeh, Iman
  7. Abstract:
  8. This thesis analyses the relationship between performance and capital structure of listed companies in the Tehran stock exchange. For examining this relationship, we use trade-off theory. This theory states that using debt comes with some benefits and costs for the company. If this theory holds true, we expect that in a low debt capital structure, as a result of benefits of using debt surpasses the costs of it, the relationship between debt and performance should be positive and in a high debt capital structure, as a result of costs of using debt surpasses the benefits of it, using more debt should have negative relationship with performance. For examining this relationship, we first gather financial statements of listed companies in the Tehran stock exchange between 2006 and 2019. After removing data related to the financial companies from our dataset, we analyse 5576 data for this thesis. We build a model that can examine the relationship implied by the trade-off theory. After analysing the model’s results, we conclude that the relationship implied by the trade-off theory holds for our total dataset. To see the industry effect on this relationship, we then categorize companies based on their operations into different sectors and run our model on each sector. After analysing each sector’s result, we find out, just like our total dataset, the relationship holds for companies in the basic materials, technology, industrial and utilities sectors. As for the healthcare, consumer cyclicals, consumer non-cyclicals and energy sectors only the second part of expected relationship holds, which means in high debt ratios, relative increase of debt in the capital structure has negative relationship with the performance for companies in these sectors. Finally for the companies in the telecommunication sector we don’t observe any meaningful relationship between capital structure and performance.
  9. Keywords:
  10. Performance ; Capital Structure ; Debt Ratio ; Trade-off Theory ; Private Equity ; Tehran Stock Exchange ; Listed Companies

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