A comprehensive review of inter-relationship among capital structure, free cash flow, diversification and firms’ performance (Tehran Stock Exchange)

Subject Areas : Journal of Investment Knowledge

MohammadAli Aghaei ¹ , Sahar Sepasi ² , Morteza Kazempour ³

1 - Associate Professor, Department of Accounting, Tarbiat Modarres University
2 - Faculty of Management & Economics, Tarbiat Modares University
3 - Master of Accounting, Tarbiat Modarres University, Faculty of Management and Economics

Received: 2016-06-07 Accepted : 2016-07-27 Published : 2017-02-19

Keywords: : Entropy, Product Diversification, Free cash flow, Capital Structure, Firm Performance,

Abstract :

The present study is a comprehensive review of the relationship between capital structure, free cash flow, diversification and firms performance. A total of 107 companies who were listed on theTehran stock exchange from 2008 to 2013 were studied. Tobin’s Q was used to measure firm performanc, Debt leverage was used to measure capital structure and diversification was used to measure entropy. The Lehn and Poulsen (1989) model was used to measure free cash flow.The results showed that free cash flow and debt leverage had positive and significant effects on performance and that diversification had a negative and significant effect. Debt leverage had a negative and significant effect on free cash flow and free cash flow and debt leverge had a positive and significant effect on diversification.Tobin's Q index showed a negative and significant effect for diversification. Diversification and Tobin's Q index showed positive and significant effects on debt leverage.

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