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The Relationship between Changes in the Financial Leverage and the Values of the Tehran Listed Firms

Author

Listed:
  • Darioush Damouri

    () (Yazd University)

  • Jamal Barzegari Khanagha

    () (Yazd University)

  • Mahin Kaffash

    () (Islamic Azad University)

Abstract

The financial management seeks to maximize the shareholders’ wealth. That is why the financial leverage should be evaluated for its influence on the firm value. The main objective of this paper is to examine the relationship between the changes in the financial leverage, stock returns and firm value. To achieve this goal, the association between the financial leverage and some variables such as stock returns, expected future return, future investment, and future operational performance on the firm value has been tested. In this regard, financial leverage has been evaluated with the two measures of book value or market value. Using the multivariate regressions and the data of 98 selected firms listed on the Tehran Stock Exchange during 2001 to 2010, the relationships between the variables have been analyzed. The findings of the study indicate that the variations in the financial leverage and stock return are positively associated. However, it was found that there is no significant relationship between the changes in the financial leverage and expected future returns. It was also shown that the relationship between the changes in the financial leverage and future investment and future operating performance are different in terms of either market value or book value. Perceiving the type of the relationship between the changes in the financial leverage and assets’ returns might be an indicator to select an optimal compound of debts used as the finance methods which lead to increasing return on assets and finally firm value.

Suggested Citation

  • Darioush Damouri & Jamal Barzegari Khanagha & Mahin Kaffash, 2013. "The Relationship between Changes in the Financial Leverage and the Values of the Tehran Listed Firms," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 3(3), pages 198-210, July.
  • Handle: RePEc:hur:ijaraf:v:3:y:2013:i:3:p:198-210
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    References listed on IDEAS

    as
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    2. Yaz Gűlnur Muradoğlu & Sheeja Sivaprasad, 2012. "Using Firm‐Level Leverage as an Investment Strategy," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 31(3), pages 260-279, April.
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