Abstract
Making decisions about capital structure is one of the most challenging and problematic issues companies face and thereby it is the most crucial decisions companies have to make for their survival. The aim of this study was to investigate the relationship between financial flexibility and capital structure decisions in accepted companies in Tehran Stock Exchange with using Falkner and Wang Model. Results of testing hypothesis which are based on a sample- that is consisted of 82 firms for a period of five years from 2006 to 2011- using multivariate linear regression models as well as panel data method, implied that marginal value of cash is negative in terms of market, i.e. the market is not willing to raise funds and will not evaluate this increase to be positive in funds. Furthermore, findings represent that there is no significant relationship between marginal value of financial flexibility and capital structure decisions of firms and firms would not pay attention to financial flexibility level in their decisions regarding increasing or decreasing debts, which in long term would result in loosing financial flexibility as well as profitable investment opportunities.
Highlights
Today, as firms become bigger and bigger and technology develops, there will be increasing need for financial sources as well as large capital sources which as a result lead to the fact that capital budgeting and financing decisions of the firms will be subjected to one of main areas of decision which financial managers of public stock firms had to make
The main objective of the present study is to study the relationship between financial flexibility and capital structures decisions of the firms listed in Tehran Stock Exchange
Result of research’s first hypothesis: The aim of testing research’s first hypothesis was to study that whether there is a significant relationship between marginal value of cash and abnormal capital returns or not? And its statistic hypothesis is defined as follows: H :0R
Summary
As firms become bigger and bigger and technology develops, there will be increasing need for financial sources as well as large capital sources which as a result lead to the fact that capital budgeting and financing decisions of the firms will be subjected to one of main areas of decision which financial managers of public stock firms had to make. Theoretical discussions about capital structure pursuit reaching a balance between two major sources of financial sources, i.e., debt and capital equity rights in order to increase firms’ shareholder value at that point to a maximum value and in contrast decrease financing costs to a minimum value. Such point (balance) is called an optimal capital structure. Financial structure refers to how a firm’s equity is provided while capital structure refers to the combination of long term financial resources. A firm’s capital structure is a part of its Financial structure (Myers, 1984b)
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