Abstract
Article history: Received May 12, 2013 Received in revised format 25 June 2013 Accepted 27 June 2013 Available online July 1 2013 Capital structure plays essential role on financial strength of business units and there are literally many studies to confirm the relationship between capital structure and return growth. In this paper, we re-examine this relationship by investigating on 12 Iranian private banks using structural equation modelling over the period 2005-2011. The proposed study of this paper designs a questionnaire and distributes it among experts and analyse it use LISREL software package. The result indicates that there is a positive and meaningful relationship, when the level of significance is five percent between capital structure and stock return in private banking industry in Iran. The implementation of Pearson and Spearman correlation tests also validate the findings. © 2013 Growing Science Ltd. All rights reserved.
Highlights
There were tremendous efforts on learning the effects of capital structure on various stock exchanges and finding the optimum level of capital structure (Bradley et al, 1984; Fama & French, 1992, 2004, 2005; Harris & Raviv, 1991). Bancel and Mittoo (2004), for instance, surveyed managers in 16 European countries on the determinants of capital structure
The survey reported that a country's legal environment was an important determinant of debt policy, it played a minimal effect in common stock policy
Yang et al (2010) solved the simultaneous equations and investigated the empirical relationship between the two endogenous variables including capital structure and stock returns and reported some common determinants. Their results demonstrated that stock returns, expected growth, uniqueness, asset structure, profitability, and industry classification were the important factors of capital structure, while the primary determinants of stock returns are leverage, expected growth, profitability, value and liquidity
Summary
There were tremendous efforts on learning the effects of capital structure on various stock exchanges and finding the optimum level of capital structure (Bradley et al, 1984; Fama & French, 1992, 2004, 2005; Harris & Raviv, 1991). Bancel and Mittoo (2004), for instance, surveyed managers in 16 European countries on the determinants of capital structure. Bancel and Mittoo (2004), for instance, surveyed managers in 16 European countries on the determinants of capital structure In their survey, financial flexibility and earnings per share dilution were important issues among them in issuing debt and common stock, respectively. Yang et al (2010) solved the simultaneous equations and investigated the empirical relationship between the two endogenous variables including capital structure and stock returns and reported some common determinants. Their results demonstrated that stock returns, expected growth, uniqueness, asset structure, profitability, and industry classification were the important factors of capital structure, while the primary determinants of stock returns are leverage, expected growth, profitability, value and liquidity. The results demonstrated persistence in volatility even after they incorporated the impact of contemporaneous and lagged volume. Margaritis and Psillaki (2010) investigated capital structure, equity ownership and firm performance. Graham (2000) considered the effect of debt on tax reduction purposes
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