The Impact of Corporate Strategy on Capital Structure in Tehran Stock Exchange

Subject Areas : Financial Markets and Institutions

Fraydoon Rahnamay Roodposhti ¹ , Anahita Zandi ²

1 - Professor, Department of Accounting, Tehran Research Branch, Islamic Azad University, Tehran, Iran
2 - lecturer

Received: 2021-01-05 Accepted : 2021-04-09 Published : 2020-12-21

Keywords: Corporate Strategy, Capital Structure, integration, Diversification, External activity,

Abstract :

The impact of corporate strategy decisions on capital structure has attracted researchers and managers for decades, though these decisions have so far yielded complex and uncertain results. While previous studies have focused on the effective effects of a single strategy at one point in time, this study attempts to provide an overview of the impact of strategic decisions on capital structure. According to the hierarchical strategy theory, there are three effective strategies, namely external activity, diversification and integration (integration), at the company level. This study was conducted using the annual data of listed companies in Tehran Stock Exchange during the period 2013-2019. By screening, 152 companies were identified as the sample of the study. Multivariate linear regression based on panel data was used to test the research hypotheses. The results of empirical evidence show that the aforementioned strategies influence the structure of corporate capital simultaneously and independently. Integration and external activity are inversely related to debt ratio, whereas diversification is directly related to debt ratio. The findings of this study contribute to the richness of the work on capital structure / strategy and help more academics and managers understand the impact of strategy on firm capital structureKeywords: Capital structure, corporate strategy, integration, diversification, External activity

References:

اسدی، غلامحسین؛ بیات، مرتضی؛  نقدی، سجاد. (1393). عوامل مالی و غیر مالی موثر بر تصمیمات مرتبط با ساختار سرمایه. پژوهش های تجربی حسابداری، 4(4)، 203-187.

رهنمای رودپشتی، فریدون؛  زندی، اناهیتا. (1398). قدرت مدیر عامل و ساختار سرمایه مبتنی بر مدل لی. حسابداری و منافع اجتماعی، 9(1)، 20-1.

عرب صالحی، مهدی؛ مؤیدفر، رزیتا؛  کریمی، سجاد. (1391). تأثیر ریسک محیط، استراتژی شرکت و ساختار سرمایه بر عملکرد شرکت‌های پذیرفته شده در بورس اوراق بهادار تهران. نشریه پژوهش های حسابداری مالی, 4(3), 70-47.

عظیمی، آرش؛ جواد یاوریان؛ طهماسبی، دلارام.  (1391)، بررسی نقش استراتژی تنوع محصول و بین المللی بر ریسک و بازده شرکت ها با استفاده از دیدگاه منابع محور، اولین همایش ملی حسابداری و مدیریت، نور، دانشگاه آزاد اسلامی واحد نور.

مرفوع، محمد؛  شاکری، رباب. (1397). استراتژی‏‌های ‌‌کسب‌وکار و رابطه آن با عملکرد مالی شرکت‌ها. پژوهش های تجربی حسابداری، 8(3)، 184-157.

Agmon, T., & Lessard, D. (1981). Investor recognition of corporate international diversification: Reply. Journal of Finance, 36(1), 191-92.‏

Baker, M., & Wurgler, J. (2002). Market timing and capital structure. The journal of finance, 57(1), 1-32.‏

Bandyopadhyay, A., & Barua, N. M. (2016). Factors determining capital structure and corporate performance in India: Studying the business cycle effects. The Quarterly Review of Economics and Finance, 61, 160-172.‏

Barton, S. L., & Gordon, P. J. (1988). Corporate strategy and capital structure. Strategic management journal, 9(6), 623-632.‏

Berger, A. N., & Di Patti, E. B. (2006). Capital structure and firm performance: A new approach to testing agency theory and an application to the banking industry. Journal of Banking & Finance, 30(4), 1065-1102.‏

Cappa, F., Cetrini, G., & Oriani, R. (2020). The impact of corporate strategy on capital structure: evidence from Italian listed firms. The Quarterly Review of Economics and Finance, 76, 379-385.‏

Cassar, G., & Holmes, S. (2003). Capital structure and financing of SMEs: Australian evidence. Accounting & Finance, 43(2), 123-147.‏

Chaganti, R., & Damanpour, F. (1991). Institutional ownership, capital structure, and firm performance. Strategic management journal, 12(7), 479-491.‏

Chandler, A. D. (1962). Strategy and structure: History of the industrial enterprise. MIT.‏

Chen, J. J. (2004). Determinants of capital structure of Chinese-listed companies. Journal of Business research, 57(12), 1341-1351.‏

Chkir, I. E., & Cosset, J. C. (2001). Diversification strategy and capital structure of multinational corporations. Journal of Multinational Financial Management, 11(1), 17-37.‏

Chkir, I., & Cosset, J. C. (2003). The effect of international acquisitions on firm leverage. Journal of Financial research, 26(4), 501-515.‏

Doukas, J. A., & Pantzalis, C. (2003). Geographic diversification and agency costs of debt of multinational firms. Journal of Corporate Finance, 9(1), 59-92.‏

Dufour, D., Luu, P., & Teller, P. (2018). The influence of cash flow on the speed of adjustment to the optimal capital structure. Research in International Business and Finance, 45, 62-71.‏

Fatemi, A. M. (1988). The effect of international diversification on corporate financing policy. Journal of Business Research, 16(1), 17-30.‏

Frank, M. Z., & Goyal, V. K. (2003). Testing the pecking order theory of capital structure. Journal of financial economics, 67(2), 217-248.‏

Gegenhuber, T., & Dobusch, L. (2017). Making an impression through openness: how open strategy-making practices change in the evolution of new ventures. Long Range Planning, 50(3), 337-354.‏

Gombola, M. J., Ho, A. Y. F., & Huang, C. C. (2016). The effect of leverage and liquidity on earnings and capital management: Evidence from US commercial banks. International Review of Economics & Finance, 43, 35-58.‏

Hall, G. C., Hutchinson, P. J., & Michaelas, N. (2004). Determinants of the capital structures of European SMEs. Journal of Business Finance & Accounting, 31(5‐6), 711-728.‏

Harrison, A. E., Love, I., & McMillan, M. S. (2004). Global capital flows and financing constraints. Journal of development Economics, 75(1), 269-301.‏

Harrison, J. S. (2003). Strategic management of resources and relationships. Wiley.‏

Heston, S. L., & Rouwenhorst, K. G. (1994). Does industrial structure explain the benefits of international diversification?. Journal of financial economics, 36(1), 3-27.‏

Jaisinghani, D., & Kanjilal, K. (2017). Non-linear dynamics of size, capital structure and profitability: Empirical evidence from Indian manufacturing sector. Asia Pacific Management Review, 22(3), 159-165.‏

Javorcik, B. S., & Spatareanu, M. (2009). Tough love: do Czech suppliers learn from their relationships with multinationals?. The Scandinavian Journal of Economics, 111(4), 811-833.‏

Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs.

Joshi, H. (2018). Corporate risk management, firms’ characteristics and capital structure: evidence from Bombay Stock Exchange (BSE) Sensex Companies. Vision, 22(4), 395-404.‏

Jouida, S. (2018). Diversification, capital structure and profitability: A panel VAR approach. Research in International Business and Finance, 45, 243-256.‏

Khémiri, W., & Noubbigh, H. (2018). Determinants of capital structure: Evidence from sub-Saharan African firms. The Quarterly Review of Economics and Finance, 70, 150-159.‏

King, M. R., & Santor, E. (2008). Family values: Ownership structure, performance and capital structure of Canadian firms. Journal of Banking & Finance, 32(11), 2423-2432.‏

Kochhar, R., & Hitt, M. A. (1998). Linking corporate strategy to capital structure: diversification strategy, type and source of financing. Strategic management journal, 19(6), 601-610.‏

Lewellen, W. G. (1971). A pure financial rationale for the conglomerate merger. The journal of Finance, 26(2), 521-537.‏

Lindner, T., Klein, F., & Schmidt, S. (2018). The effect of internationalization on firm capital structure: A meta-analysis and exploration of institutional contingencies. International Business Review, 27(6), 1238-1249.‏

Margaritis, D., & Psillaki, M. (2010). Capital structure, equity ownership and firm performance. Journal of banking & finance, 34(3), 621-632.‏

Matemilola, B. T., Bany-Ariffin, A. N., Azman-Saini, W. N. W., & Nassir, A. M. (2018). Does top managers’ experience affect firms’ capital structure?. Research in International Business and Finance, 45, 488-498.‏

Mc Namara, A., Murro, P., & O'Donohoe, S. (2017). Countries lending infrastructure and capital structure determination: The case of European SMEs. Journal of Corporate Finance, 43, 122-138.‏

Miller, M. H. (1977). Debt and taxes. the Journal of Finance, 32(2), 261-275.‏

Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of financial economics, 13(2), 187-221.‏

Ramli, N. A., Latan, H., & Solovida, G. T. (2019). Determinants of capital structure and firm financial performance—A PLS-SEM approach: Evidence from Malaysia and Indonesia. The Quarterly Review of Economics and Finance, 71, 148-160.‏

Rehman, S. U., & Rehman, M. U. (2011). Revisiting determinants of capital structure: evidence and arguments. Interdisciplinary Journal of Contemporary Research in Business, 3(7), 741-749.‏

Singh, M., Davidson III, W. N., & Suchard, J. A. (2003). Corporate diversification strategies and capital structure. The Quarterly Review of Economics and Finance, 43(1), 147-167.‏

Williamson, O. E. (1988). Corporate finance and corporate governance. The journal of finance, 43(3), 567-591.‏

Wright, F. W., Madura, J., & Wiant, K. J. (2002). The differential effects of agency costs on multinational corporations. Applied Financial Economics, 12(5), 347-359.‏