Article2012

The Relationship between Capital Structure and Firm Performance Evaluation Measures: Evidence from the Tehran Stock Exchange

Abbasali Pouraghajan · Esfandiar Malekian · Milad Emamgholipour · Vida Lotfollahpour · Mohammad Mohammadpour Bagheri · Babol Branch

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Corporate Finance and Governance Financial Analysis and Corporate Governance Working Capital and Financial Performance

Abstract

The main objective of this study is to investigate the impact of capital structure on the financial performance of companies listed in the Tehran Stock Exchange. For this purpose, we studied and tested a sample of 400 firm-years among Companies Listed in the Tehran Stock Exchange in the form of 12 industrial groups during the years 2006 to 2010. In this study, Variables of return on assets ratio (ROA) and return on equity ratio (ROE) used to measure the financial performance of companies. Results suggest that there is a significant negative relationship between debt ratio and financial performance of companies, and a significant positive relationship between asset turnover, firm size, asset tangibility ratio, and growth opportunities with financial performance measures. But the relationship between ROA and ROE measures with the firm age is not significant. Also, some of the studied industries have affect on firm performance. In addition, research results shows that by reducing debt ratio, management can increase the company’s profitability and thus the amount of the company’s financial performance measures and can also increase shareholder wealth.

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References

1995What Do We Know about Capital Structure? Some Evidence from International Data 1991The Theory of Capital Structure 1999Testing static tradeoff against pecking order models of capital structure1This paper has benefited from comments by seminar participants at Boston College, Boston Unsiversity, Dartmouth College, Massachusetts Institute of Technology, University of Massachusetts, Ohio State University, University of California at Los Angeles and the NBER, especially Eugene Fama and Robert Gertner. The usual disclaimers apply. Funding from MIT and the Tuck School at Dartmouth College is gratefuly acknowledged. We also thank two reviewers, Richard S. Ruback and Clifford W. Smith, Jr., for helpful comments.1 2005The effect of capital structure on profitability: an empirical analysis of listed firms in Ghana 2005The determinants of capital structure: Evidence from China 2007Capital structure and corporate performance: evidence from Jordan 2009The impact of capital‐structure choice on firm performance: empirical evidence from Egypt 1997Financial markets and corporate strategy

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