The Effect of Financial Leverage and Cash Holding on Over-investment according to the Firm Size and Firm Life Cycle of Listed Companies in Tehran Stock Exchange

Subject Areas : Computational economics

Mostafa Sargolzaei ¹ , Pouriya Zivary Kamran ^{2 *}

1 - Assistant Professor of Banking Finance, Allameh Tabatabai University, Department of Management, Tehran, Iran
2 - MSc. in financial management, Allameh Tabatabai University, Department of Management, Tehran, Iran

Received: 2022-07-05 Accepted : 2022-07-05 Published : 2022-05-22

Keywords: Financial Leverage, Firm Size, Life Cycle, Cash holdings,

Abstract :

Adequacy (efficiency) of investment is one of the most important issues in financial management. How to use the company's resources, especially internal funds, is an important decision in the conflict between shareholders and managers. By choosing the right combination of assets and liabilities, managers try to achieve the goal of maximizing the value of the company's stock. In this study, the effect of liquidity and financial leverage of the company on over-investment as well as the effect of firm size and company life cycle in this regard has been investigated. This study is an applied research in terms of purpose and a correlational study using generalized method of moments (GMM) in terms of nature. To test the research questions using systematic elimination method, a sample of 174 companies among the firms listed in the Tehran Stock Exchange during the period of 6 years in (2014-19) selected. The results showed that financial leverage has an adverse effect on over-investment and the effect of cash retention on over-investment is positive. Firm size and life cycle also affect the relationship between financial leverage and cash retention over-investment.