Comparison of Financial Leverage Ratio before and after the Use of Off-Balance Sheet Financing in Firms Listed in the Tehran Stock Exchange

Transcription

1 Inernaional Research Journal of Managemen Sciences. Vol., 3 (Special), 46-50, 2015 Available online a hp:// ISSN X 2015 Comparison of inancial Leverage Raio before and afer he Use of Off-Balance Shee inancing in irms Lised in he Tehran Sock Exchange Mehdi Mardani *, Reza allah Deparmen of Accouning, Ayaollah Amoli Branch, Islamic Azad Universiy, Amol, Iran * Corresponding Auhor R.alaha@yahoo.com ABSTRACT: The aim of his sudy was o compare he proporion of financial leverage in companies before and afer he use of off-balance shee financing in firms lised in he Tehran Sock Exchange. The research mehod was causal-comparaive descripive. The populaion was all he acceped companies in Tehran Sock Exchange (cars and car fragmens, perochemicals, peroleum producs, cemen, pharmaceuical, home and sugar appliances) beween years of 2010 and 2014 ha 87 companies were seleced a random. Daa were analyzed using independen -es. Resuls showed ha he average financial leverage for companies which have used off-balance shee financing was equal o and he average financial leverage for companies ha did no use off-balance shee financing has been equal o Therefore, here was no significan difference beween averages of he wo samples. Oher resuls showed ha he average of reurn on invesmen (ROI) raio in companies ha used off-balance shee financing had no significan saisical reference wih an average of reurn on invesmen (ROI) raio in companies ha did no use off-balance shee financing. As well, he average of reurn on owner's equiy (ROE) raio in companies ha have used off-balance shee financing had no significan saisical difference wih he average of reurn on owner's equiy (ROE) raio in companies ha have no used off-balance shee financing. Keywords: inancial Leverage, Sock Exchange, Board of Direcors. INTRODUCTION Berger and Youdell (1998) have expressed he capial srucure as he balance beween deb and asses, he naure of asses and composiion of corporae s deb. errocene and Harvey (1991) inroduced he capial srucure as a general claim in he company's asses (quoed by Sung and Bae, 2009). Opimal capial srucure is he capial srucure ha makes opimal balance beween risk and reurn and hereby, causes o reduce he cos of capial and o maximize he sock and he value price of he company (Khodaie-valezaqard & Yahyaie, 2010). Several facors affec he capial srucure decisions. The firs facor is company's business risk or he risk associaed wih he asses in case of no o use debs. The more level of business risk in a company would cause he less opimal deb raio. The second key facor is he ax saus of he company. The mos imporan use of deb is accepabiliy of is reurn cos by he Minisry of Economy and inance which reduces he effecive cos of deb (Hasan and Bu, 2009). The hird facor is capial budgeing (Maquieira e al., 2012). Several researchers have described a series of psychological facors in connecion wih he causes of he phenomenon of overreacion by invesors and have pu 46

2 his problem in he behavioral-financial field. They poin o he wo psychological biases of invesors when making invesmen decisions in he inerpreaion of he overreacion. The one is an excessive confidence and he oher is success aribued o oneself. An excessive confidence means ha people are ineresed o rus heir skills, heir abiliies and heir knowledge oo much. An excessive confidence abou he sock ha i is difficul o deermine heir value is sronger (aramarzi & Pormosa, 2014). As a resul of he psychological bias of he success aribued o oneself, invesors have aribued he good resuls o heir skills and unexpeced adverse oucomes o heir bad luck and hey have confided o heir skills in selecing he sock compleely. The aim of his sudy was o compare he proporion of financial leverage in companies before and afer he use of off-balance shee financing in firms lised in he Tehran Sock Exchange. METHODOLOGY The research mehod was descripive and causal-comparaive. The populaion was all he acceped companies in Tehran Sock Exchange (cars and car fragmens, perochemicals, peroleum producs, cemen, pharmaceuical, home and sugar appliances) beween years of 2010 and 2014 ha 87 companies were seleced randomly. The companies wih he following condiions were paricipaed in he sudy. 1. Those ha heir financial period conduces o he end of March. 2. Those ha have been acceped in he Tehran Sock Exchange prior o Those ha are no among he mediaion, financing, leasing and insurance companies. 4. Those ha heir needed financial informaion is available. 5. Those ha are no among companies wih he iniial supply of he sock. ollowing regression model was used o achieve he research goals. : Off-balance shee financing in he sudied years : Reurn on invesmen (ROI) raio in he sudied years : Reurn on owners equiy (ROE) raio in he sudied years : Reurn on asses (ROA) raio in he sudied years : inancial leverage raio in he sudied years : Price o earnings per share raio of companies in he sudied years : The size of he companies in he sudied years According o he sudy of Glen and Singh (2004), he crierion of profiabiliy index may affec on he relaionship beween capial srucure and oher variables. Profiabiliy indices involve reurn on invesmen, reurn on owner s equiy and reurn on asses ha are calculaed as follows. A) Reurn on invesmen: B) Reurn on owners equiy C) Reurn on asses Profi and loss before axes (gross) Toal asses Profi and loss afer axes (ne profi) equiy 47

3 Profi and loss afer axes (ne profi) Toal asses D) inancial leverage raio: To calculae he financial leverage raio of firm i in year, we have (Maquieira e al., 2012): The book value of oal debs The book value of oal asses E) Price o earnings per share raio: I will be proceeded o calculae he raio of sock price o earnings per share of he firm i in year as follows. Price raio (3.5) Earnings per share Price per share Earnings per share Off-balance shee financing of he firm i in year was measured using renal coss disclosed in he noes o he financial saemens of companies lised in Tehran Sock Exchange (aramarzi and Pormosa, 2014). Independen - es was used o analyze he daa. In all analyzes, he significan level was considered as p<0.05. RESULTS Resuls of Kolmogorov-Smirnov es showed normal disribuion of he daa (p>0.05). According o he fac ha he average financial leverage for companies which have used off-balance shee financing was equal o and he average financial leverage for companies ha have no used off-balance shee financing has been equal o , herefore, here was no significan difference beween he averages of wo samples. Commening on he resul of his assumpion, i can be concluded ha he average raio of he book value of oal deb o book value of oal asses in companies ha used off-balance shee financing had significan saisical difference wih he average raio of he book value of oal deb o book value of oal asses in companies ha did no use off-balance shee financing. Table 1. Resuls of -es. inancial leverage equaliy inequaliy Levene's Tes for Equaliy of s ailed) T-es for Equaliy of s Sd. Error Inerval of he

4 The average raio of gross profi o oal asses (ROI) in companies ha used off-balance shee financing was compared wih an average raio of gross profi o oal asses (ROI) in companies ha did no use off-balance shee financing using independen -es. Resuls are represened in Table 2. Given ha he average (ROI) for companies ha have used off-balance shee financing was equal o and for companies ha have no used off-balance shee financing was equal o , so he average of wo samples did no differ significanly. I can be concluded ha he average raio of gross profi o oal asses (ROI) in companies ha used off-balance shee financing had no significan difference wih an average raio of gross profi o oal asses (ROI) in companies ha did no use offbalance shee financing. Table 2. Resuls of independen -es. ROI equaliy inequaliy Levene's Tes for Equaliy of s ailed) T-es for Equaliy of s Sd. Error Inerval of he The average raio of ne profi o oal equiy (ROE) in companies ha used off-balance shee financing was also compared wih an average raio of ne profi o oal equiy (ROE) in companies ha did no use off-balance shee financing. Given ha he average (ROE) for companies ha have used off-balance shee financing was equal o and for companies ha have no used off-balance shee financing was equal o (Table 3), i can be concluded ha he average raio of ne profi o oal equiy (ROE) in companies ha used off-balance shee financing had no significan difference wih an average raio of ne profi o oal equiy (ROE) in companies ha did no use off-balance shee financing. Table 3. Resuls of independen -es. ROE equaliy inequaliy Levene's Tes for Equaliy of s ailed) T-es for Equaliy of s Sd. Error Inerval of he DISCUSSION AND CONCLUSION The aim of his sudy was o compare he proporion of financial leverage in companies before and afer he use of off-balance shee financing in firms lised in he Tehran Sock Exchange. Resuls showed ha he average financial leverage for companies which have used off-balance shee financing was equal o and he average financial leverage for companies ha did no use off-balance shee financing has been equal o Therefore, 49

5 here was no significan difference beween averages of he wo samples. I can be concluded ha he average raio of he book value of oal deb o book value of oal asses in companies ha used off-balance shee financing had significan saisical difference wih he average raio of he book value of oal deb o book value of oal asses in companies ha did no use off-balance shee financing. Oher findings also showed ha he average raio of gross profi o oal asses (ROI) in companies ha used off-balance shee financing had no significan difference wih an average raio of gross profi o oal asses (ROI) in companies ha did no use off-balance shee financing. As well, oher resuls showed ha he average raio of ne profi o oal equiy (ROE) in companies ha used off-balance shee financing had no significan difference wih an average raio of ne profi o oal equiy (ROE) in companies ha did no use off-balance shee financing. The main objecive of he managers in he use of off-balance shee financing was o reduce proporions of deb and equiy and resuling in incremen of profiabiliy and sock price. Resuls of previous sudies showed ha off-balance shee financing fans ended o provide background for increasing sock prices using he lack of ransparency and insufficien knowledge of shareholders. Managers who used his mehod were also claimed o ac in accordance wih he accouning principles and acceped sandards, while researches which have been done on he basis of ehical approach implied ha he hey use hese principles and sandards in order o mislead he users from he informaion and o hide deb in order o illusrae he company's siuaion and profiabiliy as beer in he use of off-balance shee financing. Invesors have considered incremen of nicey in financial raios and profiabiliy raios in he company as a posiive sign and hen, predic he company's fuure profiabiliy opimisic and vice versa hey know he reducion in nicey of financial raios and profiabiliy raios in he company as a negaive sign and expec he company's fuure profiabiliy as pessimisic. REERENCES aramarzi J, Pormosa A, Sudy of he impac of off-balance shee financing on equiy in he firms lised in he Tehran Sock Exchange. Quarerly journal of accouning science and managemen audiing. 12. Glen J, Singh A, Comparing capial srucures and raes of reurn in developed and emerging markes. Emerging Markes Review. 5: Hasan A, Bu S, Impac of ownership srucure and corporae governance on capial srucure of Pakisani lised companies. Inernaional journal of business and managemen. 4: Khodaie-valezaqard M, Yahyaie M, Evaluaion of he relaionship beween financial reporing qualiy and efficiency of invesmen in companies lised in Tehran Sock Exchange. Managemen accouning. 3(5): Maquieira CP, Preve LA, Sarria-Allende V, Capial budgeing, cos of capial and capial srucure: and disincive feaures in Lain America. Emerging markes review. 13: Sung C, Bae, On he ineracions of financing and invesmen decisions. Managerial finance. 35(8):