Debt Policy and Corporate Performance: Empirical Evidence from Tehran Stock Exchange Companies

Abstract

The ability of companies in determining suitable financial policies to make investment opportunities is one of the most principal factors for the companies' growth and progression. Adopting a debt policy or a capital structure is considered as a momentous decision that influences the companies' value. This paper is aimed to investigate the probable relationship between debt policies (including Current Debt, Non-Current Debt, and Total Debt) and performance of Tehran Stock Exchange Companies. The regression model is applied to investigate the relationship between the performance indicators and debt ratios. In this research, financial performance indicators are considered as Gross Margin Profit, Return on Assets (ROA), Tobin's Q Ratio, and Debt Ratios (Current Debt, Non-Current Debt, and Total Debt). "size" and "growth rate" are considered as control variables. Results show that an increase in current debts, non-current debts, and total debts has a negative influence on the corporate performance. It was also found that companies that merely attempt to create assets through debts, without any attention to the company size and other important factors, are not able to have an excellent performance.

Debt Capital and Financial Performance: A Comparative Analysis of South African and Sri Lankan Listed Companies

“…The originality of this research is that it seeks to test the impact that the debt component of the capital structure (debt capital) has on the company's financial performance, if there's any impact at all. This supports and extends the work of other researchers (Campello, 2006;Abor, 2007;Eldomiaty and Mohamed, 2008;Sadeghian et al, 2012;Yazdanfar and Öhman, 2015;Moon et al, 2015;Davydov, 2015) that have studied the impact of debt financing on firm performance. As pointed out by Eldomiaty and Mohamed (2008), 'The literature on determinants of capital structure lends itself to firms' debt structure.…”

“…The previous studies show mixed results with some (Mesquita and Lara, 2003;Abor, 2005;David &Olorunfemi, 2010;Nimalathasan and Brabete, 2010;Salim and Yadav, 2012;etc. ) ISSN 1946-052X 2017 while others (Gleason et al, 2000;Goddard et al, 2005;Sadeghian et al, 2012;Yazdanfar and Öhman, 2015;etc. ) are showing negative results, and a few (Abu-Tapanjeh, 2006 andEbaid, 2009) finding a weak-to no-impact relationship.…”

“…Table 4.1 below shows the summary of the descriptive statistics. The most important measure that shows the balance point and is the exertion center of distribution is arithmetic mean (Sadeghian et al, 2012). The sampled companies are characterized by an average age of just above 63 years.…”

“…The other unique factor is that most previous researchers (e.g., Goddard et al, 2005;Campello, 2006;David &Olorunfemi, 2010;Salim and Yadav, 2012;Sadeghian et al, 2012;Dawar, 2014;Abeywardhana, 2015;Yazdanfar and Öhman, 2015, etc. ) have conducted their researches on all non-financial institutions industries (listed or non-listed) together in one study, while this study seeks to research only about the wholesale and retail sector (industry) due to the little amount of research conducted, as well as the negative relationships found by the few researchers on the impact of capital structure on firm performances in this particular industry (Gleason et al, 2000;Yazdanfar and Öhman, 2015).…”

Default Risk Assessment of Tunisian Smes: Multiple Criteria Decision Making Approaches

“…Finally, we conclude with the main points drawn from the empirical study. This is in line with prior research which suggests that size of the firm may have an manipulate on its performance owing to differences in operating environment, access to the markets, diversification of business and information asymmetry (Ebaid, 2009;Sadeghian et al, 2012).…”