The Influence of Iran's Entrance into the WTO on Major Indexes of Tehran Stock Exchange

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1 2013, TexRoad Publicaion ISSN: Journal of Applied Environmenal and Biological Sciences The Influence of Iran's Enrance ino he WTO on Major Indexes of Tehran Sock Exchange Darush Javid 1 and Aefe Maleki 2* 1 Assisan Professor in deparmen of accouning, Malayer branch, Islamic Azad Universiy, Malayer Iran 2 Deparmen of Accouning, Boroujerd Branch, Islamic Azad Universiy, Broujerd, Iran Received: Augus Acceped: Augus ABSTRACT Joining he World Trade Organizaion (WTO) will cerainly have major impacs on he counry s economy and saying away from i resuls in missing he chance of playing an imporan role in global decisions and reducing naion's share of world rade. Counries have realized ha privaizaion causes he securiy markes o boom. Invesors evaluae invesmen performance by using sock exchange indexes. This sudy aims o examine Iran's enrance ino he WTO on major indexes of Tehran sock exchange. The paricipans consis of (150) accouning professors and sudens and expers. A quesionnaire was used for collecing daa during he fall of To examine validiy of quesions he KMO es was used. In order o es hypoheses One- sample T-es and Friedman-es were used. Saisical analyses showed ha foreign invesmen by20/25 ranking average is he imporan facor in Iran's enrance ino WTO and joining WTO by 3/6 average and 0/595 sandard deviaion has posiive impacs on Sock Exchange s Major indexes. KEYWORDS: Enrance, Sock Exchange s Major indexes, WTO, Tehran Sock Exchange. INTRODUCTION The need o expand inernaional rade is so grea ha saying ou of he communicaion loop is impossible. The World Trade Organizaion has aken responsibiliy for meeing his need in he economic sphere (Shirkavand, (2000)). By joining he WTO many companies have been able o cross boundaries hrough join invesmen and cooperaion wih local companies wihou sharing in asses have influenced by independen companies' aciviies. In addiion o removing rade barriers and he free flow of goods, services and producion facors can also be achieved. By expanding compeiive markes and joining WTO, counries have realized he necessiy of privaizing public firms wih he aim of developing capial marke hrough boosing sock marke, exending share ownership, encouraging differen groups' people o make invesmen and increasing financial markes efficiency. One of he consequences of globalizaion is capials ha are exchanged wihou any resricion. Since people don like keeping exra cash because of opporuniy cos and decrease in value, hey prefer o inves in several ways such as securiies. In capial marke, sock indices display marke condiions like a hermomeer, and hereby invesors use hem in order o idenify he marke rend, evaluae he pas, and in some cases predic he fuure(kiany,(2010). STATEMENT OF THE PROBLEM Joining WTO means ha all counries follow he same regulaions in heir rading operaions wih oher member saes, and respec he rade laws and economic srucure of heir rading parners. Today, no counry can subsis alone and wihou cooperaion wih he inernaional communiy because no counry has compeiive advanages in all fields including producions, echnology, capial and ec. Regarding he imporan role of rade in inernaional economy and he effors made by differen counries o increase heir share in global rade in order o profi more from world rade, mos counries seek o presen a posiive image so ha hey can receive more subsanial porions of he global rade, herefore, as an imporan inernaional organizaion, WTO is a key player which makes commercial laws and aemps o creae a favorable rade environmen by removing barriers and providing more compeiive environmen. Enrance ino WTO may provide grea opporuniies such as faser and cheaper access o he informaion, aracing foreign invesmen, managing exernal debs o provide adequae resources for developmen, removing rade barriers, educaion, and developmen of Produciviy. I also involves hreas such as exchange rae flucuaions, problems relaed o low charges of goods and services, risk of firms bankrupcy when compeing wih heir compeiors. Today, capial, regardless of geographic boundaries is easily ransferred and invesors are looking for more profis and increasing heir capial, herefore hey are willing o venure beyond he geographic boundaries. One field ha invesors choose o inves in is he sock exchange. As menioned earlier, foreign invesmen can provide grea opporuniies.increase in capial *Corresponding Auhor: Aefe Maleki, Deparmen of Accouning, Boroujerd Branch, Islamic Azad Universiy, Broujerd, Iran, E- mail: aefemaleki79@yahoo.com 52

2 Javid and Maleki, 2013 marke liquidiy causes urnover o rise up and marke efficiency improves as a resul, consequenly, he cos of financing domesic companies is reduced and he demand for securiies rises hrough increasing he sock price. However, here are risks such as domesic and inernaional crises, ineres and exchange rae flucuaions, and increased risk of ownership and dominance of foreign companies over domesic companies. Invesors use indexes o evaluae he marke climae and in some cases hey even predic fuure o assess pas. In fac, he major sock indexes are considered as he mos imporan crieria for evaluaing he performance of invesmen in he sock marke and even non-financial invesmens.sudying he effec of Iran's enrance ino he WTO can help officials o make appropriae decisions and ake he necessary seps in order o make furher profis. LITERATURE REVIEW Jalaee and sabaqpour (2009) in he research examined he effec of FDI on economic growh hrough financial markes.they concluded ha by incorporaing he indexes and ener he economic growh model, FDI has a negaive impac on economic growh and improving financial markes resul in enhancing he sabiliy of impac FDI on Iran's economic growh. Toraby and mohammadzade-asl (2010) sudied he globalizaion role in aracing foreign invesmen and economic growh. The resuls revealed ha here is direc relaionship beween FDI flows and invesing in porfolio and economic growh in counries wih higher degree of globalizaion and srucural facors, globalizaion, policy and globalizaion measures o arac capial and economic growh in counries wih a lower degree of globalizaion has a higher imporance. Mahdavi e al (2010) in heir work examined he impac of financial marke developmen in impac of FDI on economic growh in hos counries using panel daa. The resuls showed ha in erms of financial marke, in developed counries, FDI has posiive impac on economy growh and in less developed counries his impac isn nifican. Sajjady e al (2010) invesigaed he relaionship beween macroeconomic variables and he Cash reurn on sock -Tehran Sock Exchange.They concluded ha here are posiive relaion beween macroeconomic variables (inflaion, liquidiy, exchange rae and oil income) and he Cash reurn on sock. Vaaanen e al (2010) in he research sudied he inernalizaion of rade and company performance in Russia. The resuls suggesed ha globalizaion has a considerable effec on company s performance measures. By globalizing of performance companies enhance he produciviy and profiabiliy of labor force. Besides, by joining Russia he world marke he posiive effecs of growh is gradual. Mossa,I (2004) examined he degree of aracing foreign invesmen in differen markes. He found ha developing markes will arac more foreign invesmen flows han large marke and counries ha pay more imporan o he educaion and, R&D and have managed o absorb he flow. Ranceir e al (2004) in heir work sudied he impacs of releasing financial markes and capial flows on economy growh. The resuls indicaed ha he impacs of releasing financial markes have posiive effec on economy growh bu, he effec is weak because of crises and is consequences. Sada Amini e al (2012) examined he effecs of rade liberalizaion on curren accoun balance of paymens and economic growh in Iran. In his sudy, by exploring he relaionship beween rade balance and economic growh, he effec of rade liberalizaion on economic growh has been invesigaed. Time series daa had been used o esimae he model in he years Using auo regressive disribued lags (ARDL), he exisence of long-erm relaionship beween variables has been invesigaed. Furhermore, using he error correcion mehod (ECM), he exisence of shor-erm relaionship beween variables has been invesigaed. The resuls show ha, he effec of rade liberalizaion on he rade balance is posiive and nifican in he long run as well as on economic growh. Bu, he effec of rade liberalizaion on he curren accoun balance of paymens is no nifican. Javid and Bigham (2013) in he research examined he effec of advanced manufacuring sraegies and informaion echnology on financial performance of he companies which have been acceped in Tehran sock exchange. This research is based on his hypohesis: here is nifican relaionship beween advanced manufacuring sraegies and financial performance indicaor in Tehran sock exchange. For analyzing daa Principle componen, regression analysis and correlaion have been used. The resuls show ha advanced manufacuring sraegies and informaion echnology affeced he financial performance. RESEARCH HYPOTHESES Main Hypohesis: Iran's enrance ino he WTO has an impac on he Tehran Sock Exchange Major indexes. Sub-Hypohesis 1: Iran's enrance ino he WTO has an impac on he Tehran Sock Exchange price index. Sub-Hypohesis 2: Iran's enrance ino he WTO has an impac on he Tehran Sock Exchange cash reurn. 53

3 Sub-Hypohesis 3: Iran's enrance ino he WTO has an impac on he Tehran Sock Exchange price and cash reurn indexes. Sub-Hypohesis 4: Iran's enrance ino he WTO has an impac on he Tehran Sock Exchange indusry index. Sub-Hypohesis 5: Iran's enrance ino he WTO has an impac on he Tehran Sock Exchange 50 op companies. THE SAMPLE, POPULATION AND METHODOLOGY The presen paper is an applied sudy and a survey in naure. Library mehod was used o compile lieraure in Secion 2.Since Iran has no joined he WTO ye, so a quesionnaire was used o measure variables, collec he relevan informaion and obain he resuls wihin 4 and 5 secions. All quesions were dened based on a Liker scale. Quesions are composed of variables (indexes) exraced from he lieraure. Cronbach's alpha coefficien was used o assess he reliabiliy by 0/95. For daa analysis, descripive and inferenial saisics were used. In his sudy, afer exracing 22 variables from he lieraure, exploraory facor analyses of he daa was carried ou, hen daa were roaed by Varimax mehod.for his purpose, The KMO Measure of Sampling Adequacy Tes was used ha shows parial correlaion beween variables. The 5-choice Liker scale was used o examine he research s subjec, moreover because of he quaniaive daa, daa analysis was carried ou using one-sample -es(for he mean) which our hypohesis is confirmed if he mean is greaer han a cerain exen. In addiion, Friedman es was used for measuring he same ranking quesions wih respec o he assumpions ha he resuls of his es deermines he variables which affec joining WTO. The populaion of he presen research consiss of he accouning sudens and professors and professionals working in sock marke. Since he sudy populaion is unlimied, Cochran's formula was used o esimae he sample size and he sample size of 150 was obained a 95% confidence level. Z 2 2. P. q n d n (1 / 96 ) 2.(0 / (0 / 08) 2 5).( 0 / 5) 150 FINDINGS The daa in his sudy were roaed by Varimax using KMO-es. I measures sampling adequacy and checks parial correlaion beween variables. I deermines wheher he common variance of some laen facors is underlying, his index ranges beween 0-1. Resuls KMO 0/873 Barle s 0/2736 Sig Table1-KMO-es o he suiabiliy of he research quesions Loadings 0/426 0/656 0/633 0/616 0/567 0/592 0/661 0/630 0/611 0/696 0/698 componen Q12 Q13 Q14 Q15 Q16 Q17 Q18 Q18 Q19 Q20 As shown in he above able he KMO value is greaer han 0/5 and Barle s es nifican level is less han %1, on he oher hand, facors' scores for each quesion is more han 0/3,so quesions 1 o 22 are appropriae o measure variables. Sub-Hypohesis 1: Iran's enrance ino he WTO has an impac on he Tehran Sock Exchange price index Table 2 : -es o describe daa for sub-hypohesis 1 Q21 Table 3 : -es for sub-hypohesis 1 Loadings 0/761 0/795 0/594 0/625 0/593 0/490 0/599 00/534 0/671 00/569 0/588 0/065 0/806 3/ componen Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Confidence inerval 0/95 0/253 0/514 0/384 5/82 54

4 Javid and Maleki, 2013 The resuls of he above ables show ha he average response o his hypohesis is 3/384 while he base mean equals 3, so we observe ha he average response of 0/384 is greaer han he base mean. Then H 0 is rejeced and H 1 is confirmed a %1 -level. Therefore, according o his hypohesis, by 99% confidence one can say ha he obained means were more han 3. Consequenly, paricipans agree wih he sub-hypohesis1. Sub-Hypohesis 2: Iran's enrance ino he WTO has an impac on he Tehran Sock Exchange cash reurn. Table 4 : -es o describe daa for sub-hypohesis 0/064 0/792 3/ Table 5 : sub-hypohesis 2 -es Confidence inerval 0/95 0/289 0/545 0/417 6/45 The resuls of ables 4 and 5show ha he average response o sub-h2 is 3/417 bu he base mean equals 3, so we see ha he average responds of 0/417 is greaer han he base mean. Then he null hypohesis is rejeced and he alernaive hypohesis is acceped a %1 -level.therefore, according o his hypohesis, by 99% confidence one can say he obained means answers were more han 3. Tha is, paricipans agree wih he hypohesis-1. Sub-Hypohesis 3: Iran's enrance ino he WTO has an impac on he Tehran Sock Exchange price and cash reurn indexes. Table 6: -es o describe daa for sub-hypohesis 3 0/060 0/374 3/ Confidence inerval 0/95 0/336 0/576 Table 7: sub-hypohesis 3 -es 0/456 The resuls of ables 6 and 7 repor ha he average response o sub- H3 is 3/452 bu he base mean equals 3, so we observe ha he average responds of 0/452 is greaer han he base mean. Then H o is rejeced and H 1 is confirmed a %1 -level.therefore, according o his hypohesis, by 99% confidence one can say he obained means answers were more han3, or answers have been lef high and very high. Consequenly, paricipans agree wih he hypohesis-3. Sub-Hypohesis 4: Iran's enrance ino he WTO has an impac on he Tehran Sock Exchange indusry index. Table8: -es o describe daa for sub-hypohesis 4 Table 9: sub-hypohesis 4 -es 0/057 0/699 3/ /53 Confidence inerval 0/95 0/365 0/591 0/478 8/37 The resuls of ables 8 and 9show ha he average response o sub-h4 is 3/475 bu he base mean equals 3, so we observe ha he average responds of 0/475 is greaer han he base mean. Then he null hypohesis is rejeced and he alernaive hypohesis is confirmed a %1 -level.therefore, according o his hypohesis, by 99% confidence one can say ha mean answers were more han3, or answers have been lef high and very high. Consequenly, paricipans agree wih he hypohesis-4. Sub-Hypohesis 5: Iran's enrance ino he WTO has an impac on he Sock Exchange 50 op companies. 55

5 Table10 : -es o describe daa for sub-hypohesis 5 0/061 0/757 3/ Table 11 : sub-hypohesis 5 -es Confidence inerval 0/95 0/565 0/443 0/678 9/13 The resuls of he above ables show ha he average response o sub-h5 is 3/56 bu he base mean equals 3, so we observe ha he average responds of 0/56 is greaer han he base mean. Then H 0 is rejeced and H 1 is confirmed a %1 -level.therefore, according o his hypohesis, by 99% confidence one can say ha he obained means answers were more han 3, ha is paricipans agree wih he hypohesis-5. Main Hypohesis: Iran's enrance ino he WTO has an impac on he Tehran Sock Exchange main indexes. Table 12 : -es o describe daa for main hypohesis 0/048 0/595 3/ /95 Confidence inerval 0/504 0/696 Table 13: Main hypohesis -es 0/600 The resuls of ables 12 and 13 illusrae ha he average response o he main hypohesis is 3/60 while he base The resuls of ables 12 and 13 illusrae ha he average response o he main hypohesis is 3/60 while he base mean equals 3, hence we observe ha he average responds of 0/60 is greaer han he base mean. Then H 0 is rejeced and H 1 is confirmed a %1 -level.therefore, according o his hypohesis, by 99% confidence one can say ha he obained means answers were more han 3.Consequenly, paricipans agree wih his hypohesis Comparison es of research quesions nificance Table 14: Rank average of Friedman -es o compare he nificance of he research quesions, he main hypohesis Table15: Friedman es for comparison of research quesions 12/33 The resuls repored in able 15 reveal ha he Friedman-es has been nifican a %1 -level, so here is a difference beween quesions in erms of nificance.as shown in ranking able (able 14) quesion 3-he foreign invesmen variable- enjoys he highes rank among all variables. Since joining he WTO has such Mean Rank quesions Mean Rank quesions 14/48 Q12 15/37 Q1 14/32 Q13 15/08 Q2 14/32 Q14 20/25 Q3 14/32 Q15 17/56 Q4 14/29 Q16 15/13 Q5 14/29 Q17 15/02 Q6 16/41 Q18 13/54 Q7 15/46 Q18 13/49 Q8 14/99 Q19 15/99 Q9 12/82 Q20 14/71 Q10 15/73 Q21 14/39 Q chi-square N

6 Javid and Maleki, 2013 consequences as increasing inernaional rade flows, foreign direc invesmen, echnology ransfer and ec, in opinion of our paricipans foreign invesmen is he mos imporan resul of joining he WTO. Table16: Mean Rank and Friedman es for Comparison of sub -hypoheses quesions chi-square N Mean rank Q 2/82 7 2/ / /26 9 3/ / / / / /57 1 2/ / /51 5 2/43 6 2/ / / / / / /63 3 3/ / / / /9 22 Sub-H 1 Sub-H 2 Sub-H 3 Sub-H 4 Sub-H5 The resuls shown in able16 show ha he Friedman-es is nifican a %1 -level, so here is a difference among quesions in erms of imporance. As i can be seen quesion 9 - demand for purchasing share variable- has he highes rank. As joining he WTO led o improving he privae secor wih developing he domesic capial marke hrough boosing he Sock Exchange, exending sock ownership and engaging greaer number of people in invesmen, so according o his es, demand for buying sock is he mos imporan consequence of joining WTO. Friedman es for sub-hypohesis 2, 3 and 4 isn' meaningful a %1 level. Which means no difference exiss beween research quesions. Sub-hypoheses 5 is nifican a %1 level of nificance, hence here is a difference beween research quesions. Quesion 3 foreign invesmen variable -is asned he highes rank, according o he es, foreign invesmen is he mos imporan consequence of joining he WTO. CONCLUSION Based on he resuls, Iran's enrance ino he WTO will increase he number of forward conracs, call and pu opions and demand for buying share, hus sock price and he indexes of Tehran Sock Exchange will rise and by reducing invesmen risks, increasing yield on share, profiabiliy, increasing cash reurn and more cash flows from invesing, he sock yields index increase,as a resul, i causes he cos of goods and services o drop, increases sales, raises price and cash yield,and consequenly, price and cash yield indexes rise.besides, share value of all indusrial companies and indusries wih compeiive -advanage and leading indusries boom, herefore, he index of indusry rises. I also increases he amoun of foreign invesmen and sock prices of 50 op companies and develops non-oil expors; herefore, he index of 50 op companies' increases oo. In addiion, Friedman -es showed ha foreign invesmen is he mos imporan benefi of WTO. Comparing he resuls wih hose of similar sudies The resuls of presen sudy are consisen wih Jalaee and sabaqpour, Ranceir, e al, Sajjady, e al, Vaaanen, e al, Mossa, and Toraby and mohammadzade-asl researches ; however, hese resuls are inconsisen wih Mahdavy, e al in less developed counries. SUGGESTIONS The resuls of he sudy sugges ha: Forward conracs and policies are drawn up well, improving he qualiy and variey of producs of companies wih he aim of increasing share price and demand. Creae he appropriae condiions for reducing invesmen risks and increasing he sock reurn. 57

7 Paying more aenion o produc den and developmen, as well as using more high qualiy maerials, which reduce he cos of hiring skilled labor, goods and producs. Moreover, using more effecive markeing mehods o raise producs sale. Indusries wih comparaive advanages and leading indusries can have a successful presence in inernaional markes and increase heir equiy, so an aemp should be made o mainain his presence in global markes. Weak indusries should be srenghened and suppored so ha enrance ino WTO is no affeced. srenghening he organizaions associaed wih expors, reforming expor and impor laws in order o increase non-oil expors as well as supporing op 50 companies in an aemp o increase he value of heir sock liquidiy, moreover, providing he foundaions for foreign invesmen and reforming he financial, moneary and exchange polices All he sudy's hypoheses were confirmed, hus i is recommended he auhoriies make a serious aemp o fulfill he requiremens for promoion and developmen of he sock marke o faciliae he process of joining he World Trade Organizaion. Recommendaions for he fuure researches: Since many member saes equal Iran wih respec o required condiions for joining he WTO have joined he WTO; herefore, i is recommended ha he fuure researchers compare he indexes influencing sock exchange before and afer joining he WTO in hese counries o idenify he changes in hose counries sock Exchange. In his sudy, he possible impacs of WTO on he Tehran Sock Exchange index were examined; herefore, i is recommended ha he possible impacs of joining WTO on floaing sock and he index's of op 30 companies will be invesigaed. The influence of joining WTO on he Tehran s OTC (Over The Couner marke) marke indices will be evaluaed. Counries on a par wih Iran which have joined WTO will be compared wih Iran. Acknowledgmen The auhors declare ha hey have no conflics of ineres in he research. REFERENCES 1- Jalaee, Abd-Almajid, Sabaqpour, Mina,2010, "Examining impac of FDI on Iran s economic growh hrough financial markes, Economic Journal,No33 2- Javid, darush, Bigham, Habibe,2013, " The Sudy of Advanced Manufacuring Sraegy and Is Effec on Financial Performance in Tehran s Sock Exchange", Journal of Basic and Applied Scienific Research, 3(6), Juha Vaaanen,Daria Podmenina, Rajesh,2010,"Inernaionalizaion And Company Performance A Sudy of Emerging Russian Mulinaionals Business Review", Journal Impac Facors Relaed,vol.17Lss:2,PP Kiany,Reza, 2010, " Repor on analyzing Sock Exchange Indexes free floaing sock approach ", Iran s Capial Marke Research & Developmen Associaion 5- Mahdavi, Rouh-Allah, Jahangard, Esfandiar, 2010," Impac of financial marke developmen in impac of FDI on economic growh in hos counries using panel daa", Economic Modeling Research Journal, No2 6- Moosa,I.., 2004, " The Deerminaion OF Foreign Direc Invesmen In mena Counries An Exreme Bounds Analysis. Over view And policy Messages, The Developmen Poenial OF Surging Capial Flows " Inernaional Finance Team OF Word Banks Developmen Prospecs Group Working Paper, No44 7- Rancier, R., Tornell, A., & Wesermann,F, 2006, " Decomposing The Effecs of Financial Liberalizaion : Crises VS. Growh "., NBER Working Paper, No, Sajjady,housein e al, 2010, " The relaionship beween macroeconomic variables and he Cash reurn on sock -Tehran Sock Exchange" Economic Sciences Journal,No2 9- Shirakvand, saied,2000," joining Iran he WTO, consequences and pracical. " Managemen Knowledge Journal,No Sada Amini e al,2012," The Effec of Trade Liberalizaion on Balance of Paymen and Economic Growh in Iran", Journal of Basic and Applied Scienific Research, 2(7), Toraby,aghi, Mohmmadzade,Nazi, 2009, " The role of globalizaion in aracing exernal capial and economic growh", Economic Journal,No2 58