The effect of companies' debt structure and investment on the financial distress of companies admitted to the Tehran stock exchange

Document Type : Research Paper

Authors

Accounting Department, Gachsaran Branch, Islamic Azad University, Gachsaran, Iran

Abstract

This study aimed to evaluate the effect of companies’ debt structure and investment on the financial distress of companies listed on the Tehran Stock Exchange. This applied study was conducted on companies listed on the Tehran Stock Exchange in 2016-2021, 120 of which were selected by screening. The research hypotheses were tested, and the results were analyzed using panel data, Generalized least-squares (GLS) regression, and EViews software version 10. Based on the results, the capital structure had a positive and significant effect on the financial distress of listed companies. In addition, there was a significant negative relationship between investment and financial distress.

Keywords

[1] K.-U. Bhat, S. Chen, Y. Chen and K. Jebran, Debt capacity, debt choice, and underinvestment problem: evidence from China, Econ. Res. Ekon. Istra Zivania 33 (2020), no. 1, 267–287.
[2] U.S. Bhutta, A. Al-Hares, Y. Shahab and A. Tariq, The jinx of real earnings management: Evidence from inefficient investments and debt maturity structure in Pakistan, J. Account. Emerg. Econ. 12 (2022), no. 2, 405–432.
[3] H.-I. Chou, and H. Li and X. Yin, The effects of financial distress and capital structure on the work effort of outside directors, J. Empir. Finance 17 (2010), no. 3, pp. 300–312.
[4] V.A. Dang, Leverage, debt maturity, and firm investment: an empirical analysis, J. Bus. Finance Account. 38 (2011), no. 1-2, 225–258.
[5] E. Esmailpour, Investigating the relationship between borrowing capacity, capital structure, and financial distress with working capital adjustment in companies listed on the Tehran stock exchange, Accounting Master’s Thesis, Urmia University, 2018.
[6] T. Farahani and M. Sabouri, The effect of capital adequacy ratios, capital structure and liquidity on financial performance of commercial banks, Islam. Econ. Bank. 9 (2020), no. 31, 247–262.
[7] H. Fatahi and S.A. Aal Ali, Investigating the effect of capital structure on financial distress with the moderating role of the size of companies admitted to the Tehran stock exchange, J. Res. Manag. Account. 29 (2019), 9–29.
[8] M.K. Khan, S. Zulfiqar and A. Hussain, Innovation and investment in high-tech firms in the financially constrained environment, Academic J. Soc. Sci. 4 (2020), no. 2, 187–207.
[9] K.L.-H. Khaw and B.C.J. Lee, Debt maturity, underinvestment problem and corporate value, Asian Acad. Manag. J. Account. Finance 12 (2016), no. 1, 1–17.
[10] F. Modigliani and M.H. Miller, The cost of capital, corporate finance and the theory of investment, Amer. Econ. Rev. 48 (1958), 261–297.
[11] M.A. Nik Bakhsh, M. Torkzadeh and E. Ismaili, Investigating the relationship between capital structure and bankruptcy risk about the moderating role of financial performance in companies listed on the Tehran stock exchange, Econ. Stud. Financ. Manag. Account. 7 (2021), no. 1, 474–451.
[12] M. Nouman, I. Ahmad, M.F. Siddiqi, F.U. Khan, M. Fayaz and I.A. Shah, Debt maturity structure and firm investment in the financially constrained environment, Int. J. Emerg. Markets, ahead-of-print (2022), https://doi.org/10.1108/IJOEM-08-2020-0908.
[13] G.A. Siddiqua, A.U. Rehman and S. Hussain, Asymmetric targeting of corporate cash holdings and financial constraints in Pakistani firms, J. Asian Bus. Econ. Stud. 26 (2018), 76–97.
[14] S. Titman and S. Tsyplakov, A dynamic model of optimal capital structure, Rev. Finance 11 (2007), 401–451.
[15] R.B. Whitaker, The early stages of financial distress, J. Econ. Finance 23 (1999), no. 2, 123–132.
[16] J. Yang, Equity and debt financing constraints, McDonough School of Business, Georgetown University, Working Paper, Available at SSRN 1785066, 2015.
Volume 15, Issue 3
March 2024
Pages 221-228
  • Receive Date: 13 October 2022
  • Revise Date: 20 November 2022
  • Accept Date: 23 December 2022