Capital structure decisions and determinants: an empirical study in Iran

Abstract

The present study is aimed to investigate the determinants of capital structure of Iranian firms listed on Tehran Stock Exchange for the period between 2001 and 2010. A panel data set of 123 (1230 observation) companies for the 10 years period is collected from published annual reports of companies from Tehran Stock Exchange. The study explores the traditional financial theories (Trade-off theory and Pecking order theory) to investigate the determinants of capital structure. The variables of size, profit, growth, tangibility, and risk factors are included to represent the potential influence of traditional theories. The study analyzes the impact of the financial factors on the debt and equity structure of the Iranian firms.The results indicate that the size and risk are positively related to capital structure. In addition, profitability, growth and tangibility are negatively related to capital structure. The result of firm size is consistent with the trade-off theory and result of profitability is consistent with the pecking order theory.