Tahereh Alsadat Mirkhalili, Hamid Khajeh Mahmoudabadi^*

Show more
Department of Financial Management, Yazd Branch, Islamic Azad University, Yazd, Iran.
Show less

Abstract: The flexibility plays an important role in making the managers powerful in the regard of investment in the future. The problems of the capital market have necessitated the maintenance of flexibility for the companies for the purpose of using profitable opportunities. The present research has aimed to study the effect of financial flexibility on the financial behavior. The statistic sample used in the present study consists of 100 companies accepted in Tehran stock exchange during the years 2009 to 2015. The financial flexibility and financial behavior are respectively the independent and dependent variables which were measured by the investment activity, dividend payout ratio, amount of cash holding and company value. The data analysis was done by the use of the multi-variable regression models based on the panel data techniques and the use of Eviews econometrics software. The results concluded from the study of effect of the financial flexibility on the financial behavior corresponding to the theoretical foundations which had meaningful and positive effects. Therefore, the hypothesis that the financial flexibility has positive and meaningful effects on the investment activity of the companies accepted in the stock exchange was confirmed. The other results of paper were that the financial flexibility had negative and meaningful effects on the dividend payout ratio. So, the hypothesis that the financial flexibility has negative and meaningful effects on the dividend payout ratio of the companies accepted in the stock exchange was not confirmed. The hypothesis that the financial flexibility has positive and meaningful effects on the amount of cash holding of the companies accepted in the stock exchange was not confirmed, because the effect of the flexibility on the amount of cash holding was not meaningful. Also, the hypothesis that the financial flexibility has positive and meaningful effects on the value of companies accepted in the stock exchange was confirmed.

Keywords: Financial Flexibility, Company Value, Investment Activity, Amount of Cash Holding, Dividend

Cite this paper: Mirkhalili, T. and Mahmoudabadi, H. (2018) The Effect of Financial Flexibility on Financial Behavior of Companies Listed in Tehran Stock Exchange. American Journal of Industrial and Business Management, 8, 143-155. doi: 10.4236/ajibm.2018.81009.

References

[1]   Byoun, S. (2008) Financial Flexibility and Capital Structure Decision. SSRN Working Paper.

[2]   Heath, L.C. (1978) Financial Reporting and the Evaluation of Solvency. American Institute of Certified Public Accountants, New York.

[3]   Gamba, A. and Triantis, A. (2008) The Value of Financial Flexibility. The Journal of Finance, 63, 263-296.
https://doi.org/10.1111/j.1540-6261.2008.01397.x

[4]   Byoun, S. (2007) Financial Flexibility, Leverage, and Firm Size. Waco, TX. January.

[5]   Heaton, J. (2002) Managerial Optimism and Corporate Finance. Journal of Financial Management, 31, 33-45.

[6]   De Jong, A., Verbeek, M. and Verwijmeren, P. (2012) Does Financial Flexibility Reduce Investment Distortions? Journal of Financial Research, 35, 243-259.
https://doi.org/10.1111/j.1475-6803.2012.01316.x

[7]   Graham, J.R. and Harvey, C.R. (2001) The Theory and Practice of Corporate Finance: Evidence.

[8]   Mauer, D.C. and Triantis, A.J. (1994) Interaction of Corporate Financing and Investment Decisions: A Dynamic Framework. Journal of Finance, 49, 1253-1277.
https://doi.org/10.1111/j.1540-6261.1994.tb02453.x

[9]   Kim, C.S., Mauer, D. and Sherman, A.E. (1998) The Determinants of Corporate Liquidity.

[10]   International Accounting Standards Board (2006) Accounting Standards, Accounting Organizations.

[11]   IASB (1993) Statement of Cash Flows. International Accounting Standards, No. 7.

[12]   Ferreira, M. and Vilela, A. (2004) Why Do Firms Hold Cash? Evidence from EMU Countries. European Financial Management, 10, 295-319.
https://doi.org/10.1111/j.1354-7798.2004.00251.x

[13]   MeshkiMiavgi, M. and ElahiRoodposhti, S. (2015) Study of Effect of Conservatism on Market Value of Cash Held. Experimental Researches of Accounting, 4th Period, No. 1, 23-43.

[14]   Jensen, M. (1986) Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers. American Economic Review, 76, 323-329.

[15]   Mikkelson, W. and Partch, M. (2003) Do Persistent Large Cash Reserves Hinder Performance. Journal of Financial and Quantitative Analysis, 38, 275-294.
https://doi.org/10.2307/4126751

[16]   Ozkan, A. and Ozkan, N. (2004) Corporate Cash Holding. An Empirical Investigation of UK Companies. Journal of Banking& Finance, 28, 2103-2134.
https://doi.org/10.1016/j.jbankfin.2003.08.003

[17]   Rahmani, A., et al. (2012) Effect of Financial Flexibility on Amount of Investment and Value-Creation. Magazine of Accounting Developments of Shiraz University, 4th Period, No. 2, Autumn & Winter, 53-76.

[18]   Yung, K., Li, D. and DeQing, J.Y. (2015) The Value of Corporate Financial Flexibility in Emerging Countries. Journal of Multinational Financial Management, 32-33, 25-41.
https://doi.org/10.1016/j.mulfin.2015.07.001

[19]   Marchica, M.T. and Mura, R. (2010) Financial Flexibility, Investment Ability, and Firm Value: Evidence from Firms with Spare Debt Capacity. Financial Management, 39, 1339-1368.
https://doi.org/10.1111/j.1755-053X.2010.01115.x

[20]   Clark, B.J. (2010) The Impact of Financial Flexibility on Capital Structure Decisions: Some Empirical Evidence.
https://doi.org/10.2139/ssrn.1499497

[21]   DeAngelo, H., DeAngelo, L. and Whited, T.M. (2010) Capital Structure Dynamics and Transitory Debt.
http://ssrn.com/abstract=1262464