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The Relationship between Product Market Competition and Capital Structure of the Selected Industries of the Tehran Stock Exchange

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Author Info

  • Mahmoud Moeinaddin

    ()
    (Islamic Azad University)

  • Shahnaz Nayebzadeh

    ()
    (Islamic Azad University)

  • Masoumeh Ghasemi

    ()
    (Islamic Azad University)

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    Abstract

    The main objective of this study is to examine the relationship between product market competition and capital structure of the selected industries on the Tehran Stock Exchange. Considering Tobin’s Q and Herfindahl-Hirschman index as the independent variable and the debt ratio as the dependent variable, the research model is developed. This is an applied study classified as the descriptive- correlation study. The sample covers 89 listed firms on the Tehran Stock Exchange during a period over 2007 to 2011. The collected data is analyzed by using multivariate regression executed in EVIEWS software. The findings reveal that there is a significant association between the capital structures of the selected industry and the product market competition. Additionally, applying Tobin’s Q and Herfindahl-Hirschman index as the indexes to measure the competitiveness in the product market does not document the significant relationship between product market competition and capital structure. The other findings, however, confirm the nonlinear relationship between Tobin’s Q and capital structure.

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    Bibliographic Info

    Article provided by Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences in its journal International Journal of Academic Research in Accounting, Finance and Management Sciences.

    Volume (Year): 3 (2013)
    Issue (Month): 3 (July)
    Pages: 221-233

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    Handle: RePEc:hur:ijaraf:v:3:y:2013:i:3:p:221-233

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    Web page: http://hrmars.com/index.php/pages/detail/Accounting-Finance-Journal

    Related research

    Keywords: Capital Structure; Market Structure; Product market competition; Tobin’s Q; Herfindahl-Hirschman Index;

    References

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    1. Istaitieh, Abdulaziz & Rodriguez-Fernandez, Jose M., 2006. "Factor-product markets and firm's capital structure: A literature review," Review of Financial Economics, Elsevier, vol. 15(1), pages 49-75.
    2. Kovenock, D. & Phillips, G.M., 1995. "Capital Structure and Product Market Behavior: An Examination of Plant Exit and Investment Decisions," UFAE and IAE Working Papers 313.95, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    3. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
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    6. Harris, Milton & Raviv, Artur, 1991. " The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
    7. James H. Scott Jr., 1976. "A Theory of Optimal Capital Structure," Bell Journal of Economics, The RAND Corporation, vol. 7(1), pages 33-54, Spring.
    8. Lindenberg, Eric B & Ross, Stephen A, 1981. "Tobin's q Ratio and Industrial Organization," The Journal of Business, University of Chicago Press, vol. 54(1), pages 1-32, January.
    9. Rajan, Raghuram G & Zingales, Luigi, 1995. " What Do We Know about Capital Structure? Some Evidence from International Data," Journal of Finance, American Finance Association, vol. 50(5), pages 1421-60, December.
    10. Sumitra Naha & Malabika Roy, 2011. "Product Market Competition and Capital Structure of Firms: The Indian Evidence," Journal of Quantitative Economics, The Indian Econometric Society, vol. 9(2), pages 140-153, July.
    11. Titman, Sheridan, 1984. "The effect of capital structure on a firm's liquidation decision," Journal of Financial Economics, Elsevier, vol. 13(1), pages 137-151, March.
    12. Kee H. Chung & Stephen W. Pruitt, 1994. "A Simple Approximation of Tobin's q," Financial Management, Financial Management Association, vol. 23(3), Fall.
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