alexa Impact of Firm Specific Factors on Capital Structure based on Trade off Theory and Pecking Order Theory - An Empirical Study of the Tehrans Stock Market Companies
E-ISSN: 2223-5833

Arabian Journal of Business and Management Review
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Research Article

Impact of Firm Specific Factors on Capital Structure based on Trade off Theory and Pecking Order Theory - An Empirical Study of the Tehrans Stock Market Companies

Ebrahim Abbasi1 and Maral Delghandi2*

1University of Alzahra, Tehran, Iran

2Department of Management, University of Economic Sciences, Tehran, Iran

*Corresponding Author:
Maral Delghandi
Department of Management
University of Economic Sciences
Tehran, Iran
Tel: 88809891-92
E-mail: [email protected]

Received Date December 10, 2015; Accepted Date January 20, 2016; Published Date Janaury 27, 2016

Citation:Abbasi E, Delghandi M (2016) Impact of Firm Specific Factors on Capital Structure based on Trade off Theory and Pecking Order Theory - An Empirical Study of the Tehran’s Stock Market Companies. Arabian J Bus Manag Review 6:195. 

Copyright: © 2016 Abbasi E, et al. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

 

Abstract

The purpose of this paper is to examine determinant of capital structure of Iranian listed companies based on trade off theory and pecking order theory of capital structure. There are many factors that may affect capital structure choice. However, this study focuses on four important characteristics of Iranian firms and tries to clarify their impact on capital structure. The dependent variable is firm’s leverage ratio and independent variable consists of tangibility, profitability, growth and business risk. This study uses financial information of 133 Iranian listed companies on Tehran Stock Exchange for the period of 10 years from 2005 to 2014. The OLS regression model is used to determine relationship between dependent and independent variables. Finding show that profitability is the most important determinant of capital structure for Iranian companies followed by tangibility, growth and business risk. Profitability and business risk are inversely correlated with debt ratio, while liquidity and growth are directly associated to debt ratio. Results of hypothesis testing based on relationship between independents and dependents variables are fully in line with pecking order theory, while it partially supports trade of theory in short, capital structure of Iranian firms is completely explained by pecking order theory of capital structure.

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