Role of Investment Opportunities Set (IOS) in Companies Financing Policy

Subject Areas : Journal of Investment Knowledge

Mahdi Gholipour Khaneghah ¹ , Shahin Ramtinnia ²

1 - Ph.D. in Financial Management, University of Tehran, Tehran, Iran
2 - Ph.D. Candidate in Finance-Financial Engineering, Department of Finance, Faculty of Management, University of Tehran, Tehran, Iran

Received: 2017-06-06 Accepted : 2017-09-23 Published : 2019-03-21

Keywords: Financial management, Theory of investment opportuni, Theory of contracts, Real options, Financing policy,

Abstract :

In this paper, the evidence of contract theory regarding the effect of investment opportunities on financing policies is provided using 10125 data collected from 225 companies with non-financial nature and non-negative equity which were active from 2011 to 2015 in the firms list of the Tehran Stock Exchange. In order to achieve reliable results and avoid the consequences of limited periods of time, regression of the integrated data was used as the statistical model. The ratio of properties market to book value, the ratio of stock market to book value, the inverse ratio of price to income, and the criterion derived from factor analysis were used to quantify the concept of investment opportunities and their real options. Financing policy was extracted using the ratio of market value of debts to equities. The results showed that after controlling the effects of companies’ size and their profitability, a significant inverse relationship existed between investment opportunities and development and use of debt in the structure of capital of the surveyed companies. The obtained results are compatible with theoretical explanations in the theory of investment opportunities and contracts between stakeholders in the studied companies.    

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