Debt Policy and Corporate Performance: Empirical Evidence from Tehran Stock Exchange Companies

Nima Sepehr Sadeghian, Mohammad Mehdi Latifi, Saeed Soroush, Zeinab Talebipour Aghabagher

Abstract


The ability of companies in determining suitable financial policies to make investment opportunities is one of the most principal factors for the companies’ growth and progression. Adopting a debt policy or a capital structure is considered as a momentous decision that influences the companies’ value. This paper is aimed to investigate the probable relationship between debt policies (including Current Debt, Non-Current Debt, and Total Debt) and performance of Tehran Stock Exchange Companies. The regression model is applied to investigate the relationship between the performance indicators and debt ratios. In this research, financial performance indicators are considered as Gross Margin Profit, Return on Assets (ROA), Tobin's Q Ratio, and Debt Ratios (Current Debt, Non-Current Debt, and Total Debt). “size” and “growth rate” are considered as control variables. Results show that an increase in current debts, non-current debts, and total debts has a negative influence on the corporate performance. It was also found that companies that merely attempt to create assets through debts, without any attention to the company size and other important factors, are not able to have an excellent performance.


Full Text: PDF DOI: 10.5539/ijef.v4n11p217

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This work is licensed under a Creative Commons Attribution 3.0 License.

International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)

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