The relationship between financial flexibility and investment decisions with the future extraordinary returns of shares of manufacturing companies admitted to the Tehran Stock Exchange.

Number of pages: 107 File Format: word File Code: 29830
Year: 2014 University Degree: Master's degree Category: Librarianship
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  • Summary of The relationship between financial flexibility and investment decisions with the future extraordinary returns of shares of manufacturing companies admitted to the Tehran Stock Exchange.

    Dissertation for Master's Degree in

    Accounting

    Abstract:

    Obtaining returns in excess of market return considering other conditions such as risk is one of the most important topics discussed in financial planning and decision making. In fact, maximizing the profits and returns of shareholders by managing resources and expenses and implementing correct policies is one of the tasks and goals of financial management. In this research, the effect of financial flexibility variables and investment decisions on the future extraordinary returns of shares in 248 manufacturing companies admitted to the Tehran Stock Exchange using combined data (combination of time series and cross-sectional), the leverage ratio of the company's investments to fixed assets, the stock price index, the market price index and the total volume of the company's assets during the period of 2011-2018 have been investigated and evaluated. The explicit model used for data analysis in this study is regression model estimation using panel data econometric technique. And in order to statistically analyze the data and test the research hypotheses and find specific relationships between the variables, the inferential descriptive statistics method and the Eveiws software have been used. So that a linear model describes the relationship between financial flexibility variables and investment decisions with future extraordinary stock returns. The results of estimating the parameters in the regression model in this study show that the estimated coefficient belonging to the independent variables is statistically significant, so the variables of financial flexibility and investment decisions in manufacturing companies admitted to the Tehran Stock Exchange have the potential to influence the future extraordinary returns of stocks, but the way the above variables affect the future extraordinary returns of stocks in small and large companies is not the same.

    Key words: financial flexibility variables, investment decisions, efficiency Super Stock Futures, Firm Size, Panel Data Method

    Flexibility plays an important role in enabling future investment. Firms with financial flexibility keep a reserve amount of borrowing power so that they can invest more in the years after the conservatism policy. Financial flexibility should have a direct relationship and significant impact on capital expenditures. Also, flexible companies can more easily use their funds to finance their projects after a period of low leverage policy.

    Expressing the investment process in a coherent state requires analyzing the main nature of investment decisions. In this case, the activities related to the decision-making process are analyzed and the important factors in the investment activity environment that affect their decision-making are examined. In general, investment is defined as the process of converting financial funds into one or more types of assets that will be held for some time in the future. The investor needs to study the investment process and the wealth management of the shareholders.

    1-2. Statement of the problem

    . Managers and investors need financial information to make decisions. One of the sources of information is accounting information. Financial reports play a very useful role in people's decision making. One of the items in the financial reports is the debts, the amount of debts is considered as a factor for forecasting as well as a basis for decision making and investment. Mears[1] (1977) showed how the threats caused by corporate debt may prevent managers and investors from using profitable opportunities; Even when they are interested in using these opportunities. One of the basic issues in financial management is whether financial flexibility or financial leverage and companies' investments are effective on their stock returns? The optimal study of resources leads to the success of companies in the market, and in this way, companies can successfully pursue market opportunities and benefit from the benefits of operating in the market. Appropriate and timely decision-making increases the capital and wealth of the shareholders and ultimately increases the added value of the company.

    Evaluation of the ability to generate cash is facilitated by focusing on the financial status and cash flows of the business unit and using them in forecasting the expected cash flows and measuring financial flexibility.Companies with financial flexibility have more ability in terms of investment and due to capital market problems, maintaining flexibility leads to the use of profitable opportunities. On the other hand, the amount of the company's debts can prevent the use of these profitable opportunities, in this case, the companies that have more flexibility keep some reserve for themselves so that they can use the investment conservatism policy that increases their investment ability and consequently their profitability (Mears, 1977).

    Information about the financial situation, financial performance and financial flexibility in the financial statements and supplementary explanations in connection with it are provided in explanatory notes that are part of It is considered integral to financial statements. Flexibility is one of the issues influencing the investment policy and plays a significant role in helping managers in making investment decisions. Today, one of the managers' concerns is choosing the appropriate financing methods and choosing the optimal capital structure. Companies that have adequate financial flexibility can withstand financial pressures and provide the necessary funds for investment at minimal cost when profitable opportunities arise (Gamba and Trinity[2], 2008). Appropriate investment decisions also increase the value of the company and ultimately it is expected to lead to an increase in the stock value (from the point of view of investors). Therefore, the main purpose of this research is to investigate whether companies with financial flexibility have the ability to make more capital expenditures than companies with financial inflexibility, and whether companies use their internal cash for investment when they have financial flexibility. According to the above-mentioned cases, in this research, the effect of financial flexibility and investment decisions on the future extraordinary returns of stocks is evaluated. 1-3. The importance and necessity of research

    Nowadays, with the expansion of the qualitative level of activity as well as the development of the range of economic affairs, the financial decisions of companies are among the complex issues that arise in order to obtain the best efficiency and usefulness in the best conditions. In this regard, financial managers, considering that the main responsibility of these decisions rests with them, are seeking to achieve relationships between key factors in companies. Among these issues is the issue of investment decisions (Aon and Huang[3], 2008).

    Financial flexibility is the ability of a business entity to take effective action to change the amount and timing of its cash flows so that the business entity can react to unexpected events and opportunities. The set of financial statements reflects the information that is useful for evaluating the flexibility of the business unit. Financial flexibility enables a business unit to take advantage of unexpected investment opportunities (Accounting Standards, 2016).

    Financial flexibility is one of the most important characteristics of a company and it can be considered as maintaining borrowing capacity for the future study and development of the company or minimizing debts, to avoid financial helplessness in the face of economic records (Graham and Harvey, 2001).

    Considering that various companies with different flexibility are accepted in Tehran Stock Exchange, investors and shareholders are interested in predicting future returns. Investigating the issue of how the company's flexibility in a period will affect the future return of that company's shares (which constitutes the shareholder's return) is very important, because it will identify an influential factor for the decision-making of investors and shareholders. Also, the impact of the company's investment decisions on the future returns of that company's shares is therefore of considerable importance from the perspective of investors and shareholders to predict the future returns of stock exchange investors. In this research, we discuss the importance of helping investors in investing, as well as evaluating the performance of companies and their efficiency, and the impact of financial issues of companies on the future of their shares.

    1-4. Research objectives

    1-4-1. General purpose

    The general purpose of the research is to examine the relationship between financial flexibility and investment decisions with the future extraordinary returns of shares of manufacturing companies listed in the Tehran Stock Exchange.

    1-4-2.

  • Contents & References of The relationship between financial flexibility and investment decisions with the future extraordinary returns of shares of manufacturing companies admitted to the Tehran Stock Exchange.

    List:

     

    Table of Contents

    Title

    Page

    Abstract ..

    Y

    Chapter One: Research Overview

     

    1-1. Introduction ..

    1

    1-2. Statement of the problem..

    1

    1-3. The importance and necessity of research.

    3

    1-4. Research objectives ..

    4

    1-4-1. The overall goal..

    4

    1-4-2. Special research objectives.

    4

    1-5. Research assumptions ..

    5

    1-6. Research method ..

    5

    1-7. Research conceptual model..

    6

    1-8. The statistical population of the research..

    7

    1-9. Definitions of variables and technical terms (conceptual and operational).

    7

    1-10. Company size..

    10

    1-11. The overall structure of the research..

    10

    1-12. Chapter summary..

    11

    Chapter Two: Theoretical and background research basics

    2-1. Introduction ..

    13

    2-2. Theoretical foundations..

    13

    2-2-1. Financial flexibility.

    13

    2-2-2. Perspectives of flexibility.

    14

    2-2-3. Basic sources of financial flexibility.

    14

    2-2-4. Methods of measuring financial flexibility.

    14

    2-2-5. Financial markets..

    16

    2-2-6. Financial reporting.

    17

    2-2-7. Objectives of financial reporting.

    18

    2-2-8. Conceptual framework of financial reporting.

    19

    2-2-9. Conservative reporting.

    20

    2-2-10. Types of conservatism.

    21

    2-2-10-1. Unconditional conservatism.

    22

    2-2-10-2. Conditional conservatism.

    22

    2-2-11. Investment decisions.

    24

    2-2-12. The nature of investment.

    25

    2-2-13. Identifying investment opportunities.

    26

    14-2-2. Communication of investment opportunities and financing.

    26

    2-2-15. Investment opportunities and its relationship with profits and returns.

    27

    2-2-16. Factors affecting investment decisions.

    27

    2-2-17. Investment cash flow.

    29

    2-18-2. Future extraordinary return on shares.

    29

    2-2-18-1. Stock returns.

    29

    2-2-18-2. Factors affecting stock returns.  ..

    30

    2-2-19. Views related to stock evaluation.

    33

    2-2-19-1. The view of fundamentalist analysts.

    33

    2-2-19-2. The point of view of technical analysts (chartists).

    34

    2-2-19-3. Modern portfolio theory.

    35

    2-2-20. Definition of stock exchange.

    35

    2-2-20-1. Benefits of stock exchange.

    36

    2-2-20-2. Stock market index.

    37

    2-2-21. Influential factors in the occurrence of price bubbles in the stock market.

    40

    2-2-22. Company size ..

    41

    2-3. Research background. .

    43

    2-3-1. The internal background of the research.

    43

    2-3-2. External background of research.

    44

    Chapter three: research method

    3-1. Introduction ..

    47

    3-2. Definition of research..

    47

    3-3. research hypotheses..

    47

    3-4. Society and statistical sample..

    48

    3-5. Research method. ..

    48

    3-6. Statistical method of hypothesis testing..

    49

    3-6-1. Multivariate regression.

    49

    3-6-2. The significance test of the regression line equation.

    49

    3-6-3. LR heterogeneity of variance test.

    50

    3-6-4. Voldridge autocorrelation test.

    52

    3-6-5. The test of the equality of the average of two groups.

    53

    3-6-6. Theoretical method in using panel data.

    53

    3-6-7. Different models of combined data.

    55

    3-6-7-1. Fixed effect model. .

    55

    3-6-7-2. Random effect model.

    56

    3-6-8. Diagnosis tests.

    56

    3-6-8-1. Chow's test .

    57

    . 2-8-6-3 Brosh Pagan test. .

    57

    3-6-8-3 Hausman test.

    58

    Chapter four: data analysis

    4-1. Introduction

    60

    4-2. Descriptive statistics.

    60

    4-2-1. Examining the descriptive statistics of the variable of financial flexibility.

    60

    4-2-2. Investigating variable descriptive statistics of investment decisions.

    62

    4-2-3. Examining the stock market price index and return.

    62

    4-3. Inferential statistics.

    63

    4-3-1. Examining the usage model for hypothesis testing.

    63

    4-4. Data analysis and testing of hypotheses.

    64

    4-5. Summary of the chapter and conclusions.

    70

    Chapter five: conclusions and suggestions

    5-1.  Introduction.

    73

    5-2. Summary and conclusions of the hypothesis test. 74 5-3. Suggestions. .

    75

    5-4. Suggestions for future research. .

    76

    5-5. Research limitations.

    76

    Resources and sources.

    77

    Appendices.

    80

    Resources:

    Introduction

    They reach the decline of their economic life. Companies usually face a lot of expenses and have negative economic profits in the early years of their establishment. Also, during their economic life, they also face fluctuations that are usually caused by internal factors of the company or environmental factors. Therefore, the survival of companies is closely related to concepts such as obtaining appropriate returns and meeting the expectations of shareholders. Therefore, most of the companies' policies are related to policies aimed at increasing returns, of course, investment risk should be considered along with return.

    In this research, the relationship between financial flexibility and investment decisions with the future extraordinary returns of shares of manufacturing companies admitted to the Tehran Stock Exchange was investigated. The statistical population of this research included the companies that were members of the Tehran Stock Exchange from 1388 to 1391, which made up the number of 248 companies in the statistical population of the research.

    The hypotheses of the research include the following;

    The first hypothesis: there is a direct relationship between financial flexibility and the future extraordinary returns of the shares of companies listed on the Tehran Stock Exchange.

    The second hypothesis: between investment decisions and returns There is a direct relationship between the extraordinary future stock returns of the companies listed on the Tehran Stock Exchange.

    The third hypothesis: the degree of relationship between financial flexibility and the extraordinary future stock returns in small and large companies is not the same. 

    Fourth hypothesis: The degree of connection between investment decisions and future extraordinary stock returns is not the same in small and large companies. 

    Data analysis tools include; Panel data was a theoretical method using panel data, estimation methods, pooled least squares method, fixed effect, and random effect, and the research variables included financial flexibility, investment decisions, and extraordinary future stock returns.

    5-2. Summary and conclusion of hypothesis testing

    The method of data analysis in this thesis is the use of econometric tools and the specified model for data analysis is the regression model of combined data, although descriptive analysis of variables has been used as much as possible to complete the analysis. The results of Limer's F test in this study show that; The method of estimating the equations is the type of consolidated data because the significance level of the test is more than 5%. Next, to estimate the equations, it is necessary to perform the tests of heteroscedasticity of variance and serial autocorrelation, which the results of performing the LR heteroscedasticity test in Table 4-5 show that; The significance level in the above test was 0.000, so the null hypothesis that the variances are equal is rejected and it is concluded that the variances are unequal. Also, to measure the serial autocorrelation between the errors, the Voldridge autocorrelation test was used. The absence of serial autocorrelation between the data is accepted

The relationship between financial flexibility and investment decisions with the future extraordinary returns of shares of manufacturing companies admitted to the Tehran Stock Exchange.