Knowing the factors affecting the financial leverage of companies admitted to the stock exchange of Iran

Abstract:

From the point of view of financial management, the existence of companies begins and continues with investment and financing activities. Assuming that investment policies, investment alternatives and their rate of return are fixed, companies should act in such a way as to minimize the cost of financing necessary to carry out their investments. The purpose of this research is to find the factors that affect the financial leverage of Iranian companies. A sample of 63 companies admitted to Tehran Stock Exchange was selected for 5 years (1387-1391). For the analysis of the data, the Eviuse software and the data panel method were used. The results show that the financial leverage of Iranian stock companies in 7 major industries is affected by collateral assets, profitability, effective tax rate, company size, growth opportunities, non-debt tax shield, and industry index. This research contributes to the literature and records of factors affecting financial leverage. These findings may be useful for financial managers of companies, investors, banks, lenders and consultants of financial managers.

Key words:

Company size, profitability, financial leverage, tax rate, collateral assets, non-debt tax shield

Chapter 1:

General research

1 Introduction:

The environment in which companies operate now is growing and very competitive; In order to survive, companies are forced to compete with several factors at the national and international level and expand their activities through new investments; Companies need financial resources for investment. But the sources of capital and their use must be well determined so that the company can be profitable, and it is the duty of a financial manager to determine the sources of financing and how to use them. The purpose of financial management is to make such decisions to maximize the value of the company. Therefore, in order to maximize the value of the company, a company should determine where to invest. That is, in what combination should the assets on the right side of the balance sheet be brought and from what sources should these assets be financed? A financial manager should always be careful that the financing methods are compatible with the type of investment of the company, as well as use reasonable leverage, so that both the value of the company is maximized and the bankruptcy costs are not imposed on the company. It means that the company bears a reasonable financial risk through the use of debt.

Factors affecting the financial structure of companies are divided into two general categories of internal and external factors. Internal factors are factors that arise from the company's operations and from within the company, and are actually caused by the activity and operational characteristics that originate from within the company itself. Some of these factors can be named as follows:

type of industry, company size, business risk, operational leverage, growth opportunities, asset structure, profitability, non-debt tax exemptions (tax shield) etc.

External factors are factors that arise from outside the company or company and actually arise from the nature and characteristics of the company or company environment. Some of these factors can be named as follows:

Taxes, rates Interest, general level of business activities, availability of funds in the market, behavior of lenders, common patterns, etc. (ASDI, 1390: 11)

Therefore, this research seeks to find the effect of company collateral assets, company profitability, effective company tax rate, company's non-debt tax shield, company size, growth rate, number of subsidiaries and industry index on the financial leverage of companies listed on the Iran Stock Exchange so that financial managers, investors and lenders can use these results. Because for interested individuals and institutions, it is significant and important that the company in question has used what amount of debt and what amount of stock (equity) to finance its assets. Because this will influence their decisions regarding that company. Banks, when granting loans to companies, and investors when buying shares of companies, pay attention to the issue of the financial background of the companies.Banks when granting loans to companies and investors when buying shares of companies pay attention to the issue of what kind of financial structure the companies are based on. In financing decisions, the company uses its desired funds now so that in the future it can fulfill its obligations to the suppliers of financial resources, and what plays a key role in investment decisions is the cost of capital [1] of the company; Because the cost of capital is used as the discount rate[2] of cash flows from investment projects. Therefore, the rejection or acceptance of proposed investment projects depends on choosing the most appropriate discount rate or the cost of capital, while the cost of capital of the company is a function of its capital structure[3]. Therefore, it is expected that the change in the composition of financing sources (capital structure) will affect the cost of capital and subsequently the value of the company. According to their financing policy, the financing sources of the companies are divided into two parts: "Internal financial resources" and "External financial resources" of the company. In the internal financial sources, the company finances from the earned profit, that is, instead of dividing the profit among the shareholders, it uses the profit in the company's mainly operational activities to get more returns, and in the external financial sources, it finances from the debt and shares. (Namazi, 1384: 76)

Therefore, the questions that are raised in this connection are:

Is there an optimal structure through which the cost of the company's capital is minimized and the value of the company is maximized? And if there is such a structure, what factors play a role in determining it? This research is the percentage of finding the effect of 8 variables of company collateral assets, company profitability, effective company tax rate, company's non-debt tax shield, company size, growth rate, number of industry subsidiaries, and industry index among the current and external factors on the financial structure (financial leverage) of companies listed on the Iran Stock Exchange. 1-3 The importance and necessity of conducting research They agree on it, it is a question of financial structure (financial leverage). A company that does not have any debt is a company with a completely capital structure, but in the real world we do not find such a company, and all companies use leverage in different proportions. Therefore, for interested individuals and institutions, it is important to know what amount of debt and what amount of stock (equity) the company in question has used to finance its assets. Because this will affect their decisions regarding that company. When banks give loans to companies and investors when they buy shares of companies, it is important to have an optimal financial structure so that they can take loans or issue new shares if necessary. Both taking a loan and issuing new shares need to have a proper financial structure and structure so that both banks are willing to grant loans and investors welcome the capital increase (issuance of new shares). Considering the above, due to the importance of the financial structure in various fields, it is important to know the main factors that affect it. (Yazdani, 1373: 9)

The innovation that exists in this research is as follows:

After extensive studies, comprehensive reviews and according to previous researches, compilations and constants, it became clear that despite the many researches about Capital structure and financial leverage have been done, but so far the effect of effective tax rate, industry index and number of subsidiaries on financial leverage and capital structure has not been investigated. In this research, the effect of these three variables will also be investigated in the context of other variables. 1-4 Research Objectives: Today, successful companies are companies that, by identifying the factors affecting the optimal and optimal financial structure, get the funds they need from the right sources of financing. so that the capital cost of the company is minimized and the shareholders' wealth is maximized.