Investigating the relationship between liquidity and capital structure in companies listed on the Iran Stock Exchange

Number of pages: 114 File Format: word File Code: 29788
Year: 2011 University Degree: Master's degree Category: Librarianship
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  • Summary of Investigating the relationship between liquidity and capital structure in companies listed on the Iran Stock Exchange

    Dissertation for Master's Degree

    Orientation: Accounting

    Abstract:

    One of the topics that has been researched and discussed in the financial literature is the investigation of the relationship between the bid price difference as a measure of stock liquidity and the capital structure. Depreciation/book value of assets, market value of assets/book value of assets, profitability, average share price and company size were considered as control variables. In line with this goal, 196 companies were selected from the statistical population for which the required information was available for the 7-year research period of 81-87. To test the research hypothesis, a mixed data method (fixed effect model) was used in the panel method. The findings of the research showed that there is a positive and meaningless relationship between the liquidity of stocks and the capital structure of companies, and profitability and the market value of assets/book value of assets are effective on this relationship, and the results of this research can help the managers of listed companies to make decisions regarding the optimal capital structure.

    Introduction:

    Studies on liquidity indicators began in the early 20th century. From the very beginning, this factor attracted the attention of the financial markets. A liquid asset is considered to be traded in a short time without causing a loss. The meaning of liquidity is simply the ease of buying and selling the desired asset and the speed of converting investment or assets into cash (Khormedin and Yahyazadeh Far, 1387, 102). Regarding the liquidity of the stock market, we can refer to the difference between the bid price of buying and selling shares, which is introduced as the most important factor affecting liquidity (Fang et al. [1], 2009, 5) Chen et al. [2] (2007), so that the amount of this gap largely determines the amount of liquidity. They say that the difference between these two bid prices is also called the bid price difference of buying and selling securities. Liquidity through stock exchange reduces the cost of capital transactions and narrows the gap between the price offer of the buyer and the seller. Despite the existence of this relationship, researchers are uncertain about the effect of liquidity and its related factors on the capital structure of the company. The capital structure system of companies seeks to establish a codified framework and appropriate mechanisms for a balanced relationship between financing sources for the implementation of their projects in order to maximize the wealth of shareholders. Therefore, the investigation of the factors affecting the capital structure is of particular importance. [1]-Fang et al. Liquidity means that it is highly traded in the stock market, so Amihud [1] (2002) has introduced the power of liquidity as an index similar to the risk index and states that the lower the liquidity of a share, the less attractive that share will be to investors unless it earns more returns for its holder (Yahiazadeh Far and Khorramdin, 2017, 102).  The purpose of investment is to increase the value or at least protect the financial assets, so it seems important for investors to evaluate the performance of the portfolio in terms of liquidity, whether a person examines his portfolio individually or the portfolio of an investment company.

    One of the methods used to maximize the shareholders' wealth is the proper selection of the main financing sources, in which the combination of financial resources with characteristics such as low capital cost and higher rate of return, the capital structure that increases the value of the company or minimizes the total cost of capital is the optimal capital structure of the company, and this optimal capital structure is a combination of debt and equity, and when the stock has high liquidity, the cost of equity decreases, and companies whose shares are liquid Ballast tend to have a lower financial leverage (Sandra Merthal and Mark Lipson [2], 2009, 611) In the space of capital structure (especially in cases of information asymmetry), it is preferred that financing is done from internal sources and relatively their financing is done through shares.

    There are various theories about the capital structure of the company. They also know that theoretically, it seems that managers will have reasons to change the capital structure, so considering the role of the capital structure in wealth creation for the company, it is of particular importance to examine the factors affecting it. Therefore, it can be assumed that there is a relationship between capital structure and liquidity indicators. The main purpose of this research is to test the relationship between these two categories and also to examine the factors affecting the capital structure. The findings of this research can be effective for managers of listed companies in order to determine the appropriate method of providing financial resources. The place and the theoretical framework of the research is taken from this research. Table 1-1- Summary of the researches related to the research. Row. Research subject. Researcher. Year. and Mark Lipson [3]

    2009

    proved a significant relationship between them, increasing the liquidity of shares, the cost of equity decreases and companies prefer to finance through shares.

    2

    The relationship between the liquidity of shares and capital structure

    Frieder and Martel [4]

    2006

    The results of the hypothesis test show that with the decrease in the liquidity of stocks (increase in the difference), the financial leverage increases, while a one percent increase in the difference in the bid price of buying and selling shares leads to a three percent increase in the financial leverage

    3

    The relationship between the liquidity of stocks and the capital structure

    Shapour Salvati Vamir Rasayan

    1386

    In this regard, 60 companies from the statistical sample were evaluated for 4 years. The results of the test show that there is no significant relationship between the liquidity of the shares and the capital structure at the 95% confidence level. If they want to sell their assets, is there a suitable market to sell them or not? (Yahiyazadeh Far and Khorramdin, 1387, 102) Liquidity (in addition to the risk return rate criterion) is one of the important factors of securities investment compared to other investment opportunities. So that Amihud [5] (2002) introduced the liquidity power as an index similar to the risk index and stated that the lower the liquidity of a share, the less attractive that share will be to investors, unless the owner receives a higher return.

  • Contents & References of Investigating the relationship between liquidity and capital structure in companies listed on the Iran Stock Exchange

    List:

    Abstract: 1

    Introduction: 2

    Chapter One: General Research

    1-1 Introduction 4

    2-1- Study history. 5

    3-1- Statement of the problem 6

    4-1- The theoretical framework of the research. 7

    5-1- Research assumptions. 7

    6-1 research objectives. 8

    1-6-1 Scientific goals of research. 8

    2-6-1 Practical research objectives. 8

    7-1- The importance and special needs of conducting research. 8

    8-1 Definition of research words and terms. 9

    Chapter Two: Review of Research Literature

    1-2 Introduction 11

    2-2-Definition of capital structure 12

    3-2-Theories related to capital structure 13

    1-3-2 Theory of net income. 13

    2-3-2 theory of net operating income. 14

    3-3-2 Traditional theory. 14

    4-2- Different theories about the capital structure of companies 14

    1-4-2 - Modigliani and Miller theory 14

    1-1-4-2 - Tax and Modigliani and Miller theory. 15

    2-1-4-2 - Bankruptcy costs and Modigliani and Miller's theory. 15

    3-1-4-2 - agency costs and theory of Modigliani and Miller. 16

    2-4-2 theory of static exchange 16

    3-4-2-theory of the hierarchy of financing options. 17

    4-4-2-theory of organizational structure. 17

    5-2- Capital cost 18

    6-2- Factors affecting capital structure 19

    1-1-6-2 - Tax considerations. 19

    2-1-6-2 – Type of company assets. 19

    3-1-6-2- Fluctuation of the company's operating profit. 20

    2-6-2-factors affecting the capital structure according to the internal or external conditions of each company. 20

    1-2-6-2-External factors. 20

    1-1-2-6-2- environmental debt. 20

    2-1-2-6-2- source of capital 21

    2-2-6-2-internal factors. 21

    1-2-2-6-2- Company size. 21

    2-2-2-6-2- Research and development costs 22

    3-2-2-6-2- MV/BV ratio (asset market value / asset book value) 22

    4-2-2-6-2- Profitability. 22

    5-2-2-6-2-level of management confidence. 23

    6-2-2-6-2- Growth opportunities 23

    7-2-2-6-2- Sales volume. 24

    8-2-2-6-2- financial deficit. 24

    9-2-2-6-2- Stock returns 24

    10-2-2-6-2-Ratio of market value to book value of equity 25

    11-2-2-6-2- Liquidity. 25

    7-2- Factors related to the difference in the bid price of buying and selling shares 28

    1-7-2 The relationship between the difference in the bid price of buying and selling shares and the returns of companies 28

    2-7-2 The relationship between the dividend policy and the difference in the bid price of buying and selling shares 29

    3-7-2 The relationship between the capital structure and the difference in the bid price of buying and selling shares 29

    4-7-2 The relationship between corporate governance and the difference in the bid price of purchase and sale. 30

    5-7-2 The relationship between the offer price difference for buying and selling shares and the quality of profit 34

    6-7-2 The relationship between the stock holding period and the offer price difference for buying and selling shares 34

    7-7-2 The effect of the identity of traders or orders being unknown on the offer price difference for buying and selling shares 35

    8-7-2 The relationship between the offer price difference for buying and selling shares and the offer price difference for buying and selling shares previous stocks 36

    9-7-2 The difference in the offer price of buying and selling shares and the liquidity of assets 37

    10-7-2 The effect of legal and political laws on the difference in the offer price of buying and selling shares 38

    11-7-2 The effect of audit fees on the difference in the offer price of buying and selling shares 39

    12-7-2 The effect of information asymmetry on the difference in the offer price of buying and selling shares 39

    8-2 - Common liquidity measurement criteria. 41

    9-2- The components of the price difference of the purchase and sale offer. 46

    1-9-2 Order process costs: 47

    2-9-2- Inventory maintenance costs: 47

    3-9-2- Wrong selection costs 48

    10-2- Conclusion. 49

    11-2-Overview of research background. 49

    1-11-2- Foreign research. 49

    2-11-2- Internal investigation. 52

    Chapter 3: Research implementation method

    1-3 Introduction 56

    2-3- Research method. 57

    3-3- Statistical population. 58

    4-3- Analytical model and method of measuring research variables. 59

    1-4-3- independent variable. 60

    2-4-3- dependent variable 60

    3-4-3- control variables. 60

    5-3- Methods and tools for collecting information: 61

    6-3- How to calculate research variables. 62

    7-3 - Conceptual model of research. 64

    8-3-64

    8-3- Research tests. 66

    9-3-Regression analysis. 67

    3-10- Necessary regression tests are presented in the following two sections. 69

    11-3- Users of research results. 69

    Chapter Four: Data Analysis

    1-4 Introduction 71

    2-4- Results of descriptive statistics. 71

    3-4- Variance homogeneity test: 72

    4-4- Correlation matrix. 73

    5-4- Regression analysis. 74

    1-5-4 Test of the first hypothesis. 76

    2-5-4 test of the second hypothesis 77

    3-5-4 test of the third hypothesis 77

    Chapter five: conclusions and suggestions

    1-5 introduction 79

    2-5- Research summary. 79

    3-5 Evaluation and explanation of the results of hypothesis testing 79

    4-5 - General results of the research. 81

    5-5- Research innovation. 83

    6-5- Suggestions 83

    1-6-5- Suggestions based on research findings. 84

    2-6-5- Suggestions for future research. 84

    7-5 – Research limitations: 84

    Appendices

    Software output. 87

    Sources and reference

    Persian sources: 99

    Latin sources: 101

    English summary: 102

    Source:

    Persian sources:

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    Ahmedzadeh, M. Vahmakaran, 2014, "Examining the capital structure and financial resources of the Agricultural Bank and providing suitable solutions to optimize it", Accounting and Auditing Review, No. 39, page 8

    Ahmedpour, A. and Amir Rasaian, 2015, "The relationship between financial information and the difference in the suggested price of buying and selling shares", Noorsafagheh magazine, 30-32.

    Ahmedpour, A. and Amin Salimi, 1386, "Effect of industry and size on the capital structure of companies listed on the Tehran Stock Exchange", Journal of Social Sciences of Shiraz University, Number 1, (Accounting Special Issue) pages 15-18.

    Ismailzadeh Moqri, A., 1383, "Searching for the Optimal Capital Structure", Accountant Magazine, Number, 160, Pages 26-70.

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    Bazar Afshan, A. 2018, "Examination of the relationship between stock liquidity and company value", Master's thesis in accounting, Arak Azad University.

    Bast, J., translation of Sharifi and Taleghani, 2018, "Research methods in educational and behavioral sciences", Rushd Publications, page 125. 155. Khalghi Moghadam, H. Varafik Baghomian, 1385, "A Review of Capital Structure Theories", Noor Magazine, Number 4, Pages 58-79.

    Rasaian, A. 1389, "Liquidity of shares and its related factors", Certified Accountant Quarterly, No. 10.

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    Sinai, H. 2016, "Investigating the effect of internal factors of companies on the formation of the capital structure of companies that are members of the Tehran Stock Exchange", Accounting and Auditing Review, No. 48, pages 69-71.

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    Fakhari, H. Venerges Fallah Mohammadi, 2018, "Investigation of the effect of information disclosure on the liquidity of the shares of companies listed on the Tehran Stock Exchange", Accounting Research, No. 4, pages 148-163.

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Investigating the relationship between liquidity and capital structure in companies listed on the Iran Stock Exchange