Comparative Study of Capital Structure Determinants in Selected Stock Exchanges of Developing Countries and Tehran Stock Exchange

This paper studies determinants of capital structure in listed firms of selected stock exchanges of developing countries and Tehran stock exchange, and comprises effects of these determinants on selected stock exchanges with Iran. In this study, determinants of capital structure are studied in firm and country levels. In firm-level profitability, distance from bankruptcy, size and tangible assets, and in country level stock market development and GDP growth are studied. Data are collected from Compustat Global Vantage database, World Bank databases and Tadbirpardaz software. Panel Regression is used for analysis and Excel and EViews 6 and F and t test statistics are used. Results of study in level of developing countries show that except development of stock market, GDP growth and distance from bankruptcy, all variables have a significant relationship with capital structure; distance from bankruptcy and tangible assets on Tehran Stock Exchange have a significant relationship with capital structure. Impact of distance from of bankruptcy, size and tangible assets in Tehran Stock Exchange and selected developing countries stock exchanges capital structure are different. This paper enables to comparison, benchmarking, identifying strengths and weaknesses and its results can be used to determine strategies and objectives of firms financing.


Introduction
Providing financial resources is an important part of any business. Financial resources can be required from equity or debt. Combination of debt and equity shows capital structure. Policy of capital structure is maintaining balance between risk and return (Abdo & Miri, 2003). Debt in financial structure of a firm can increase earning because of its tax saving and consequently increases stock return, on the other hand, due to interest costs and risk of non-payment of debt financial risk can increase and thus can reduce stock return (Chipeta & et.al, 2013). Hence, one of the important responsibilities of financial managers is increasing shareholder wealth, so their main concern is firm's capital structure. As a result, managers are looking for information that identifies relationship between capital structure and shareholder wealth (Rahimi, 2009). Capital structure has known as most important parameter that affecting firms evaluating and their orientation in capital markets. However, in today dynamics environment, credit rating of firms is largely dependent on their capital structure. Firms strategic planning has driven to choose affecting resources on shareholder wealth maximizing (Sinai & Rezayian, 2006). In a comparative study between Iran and developing countries, impact of various factors on capital structure in Iran and other countries can be compared. This comparison helps to identify gaps of determinants of capital structure impact. In future researches should study reasons of these gaps and, if necessary, try to resolving them.
This research aims to analyze determinants of capital structure at firms and country levels in selected stock exchanges of developing countries and Tehran Stock Exchange. According to study of Kayo and Kimura (2011), this study analyzes profitability, distance from bankruptcy, size and tangible asset in firm

Signaling theory
According to signaling theory (ST) external borrowing generally is used to give a positive signal to market that firm has stable cash flow and is able to repay loan and its interest, and thus increases trust of shareholders to firms. Similarly, issuing new shares indicates that firm has no stable cash flow and is not in a position to repay loan and its interest (Ross, 1977).

Experimental background of study
Many studies have been carried out in field of Capital structure and its determinants and found different results. In flowing we mention some of them.
Oztekin and Flannery (2013) studied institutional determinants of capital structure adjustment speeds. They compare firms' capital structure adjustments across countries and investigates whether institutional differences help explain the variance in estimated adjustment speeds. They find that legal and financial traditions significantly correlate with firm adjustment speeds. More narrowly, institutional features also relate to adjustment speeds, consistent with the hypothesis that better institutions lower the transaction costs associated with adjusting a firm's leverage. Such associations between institutional arrangements and leverage adjustment speeds are consistent with the dynamic trade-off theory of capital structure choice. Lim (2012) investigated determinants of capital structure empirical evidence from financial services listed firms in China. The results show that profitability, firm size, non-debt tax shields, earnings volatility and non-circulating shares are significant influence factors in financial sector. Moreover, firm size is positively related to the corporate leverage ratio. It is also found that Chinese institutional characteristic affects the capital choice decision. While it confirmed that capital structure determinant of financial firms are similar to other industry, the largely state ownerships do affect capital structure choices.
Setayesh et.al (2012) has studied determinants of capital structure from agency cost theory view. Results indicate that corporate strategic mechanisms including ownership concentration, percentage of non-duty members of board and board independence, have not significant effect on book and market financial leverage of studied firm. However, there is a positive and significant relationship with agency cost and book and market leverage. Results also indicate that ratio of return on assets, payable earnings per share and Q Tobin ratio affect book leverage. Finally, by reflecting on results, we found that in both book leverage and market leverage models, effect of agency costs are more than of other variables. Metan et.al (2011) in their study examined impact of firm characteristics on capital structure of listed firms in Tehran Stock Exchange. This study investigates impact of some firm's characteristics such as firm size, asset structure, profitability, expectations growth, interest expense coverage ratio, quick ratio and return on assets in determination of firm's capital structure. Results show that capital structure and asset structure, profitability, expectations growth, quick ratio and return on assets have a significant and negative relation and capital structure and size and interest expense coverage ratio have a significant and positive relation.

Research Methodology
Needed data to calculate variables and testing hypothesis for Iranian firms are collected from Tadbirpardaz software and Codal web site and for non-Iranian firms financial data collected from Compustat Global Vantage database and World Bank database. Therefore, pool and panel regression used for analyzing data and, Excel and EViews with F-test and t-test is used for analysis.
Relationship between capital structure and its determinants has been studied by using pool and panel regression analysis as follows: ( 1 ) i represents year, j represents firm, k represents industry, l represents country, β coefficients represents effect of variable, and e represents errors. Variables in equation are defined as follows. LEV is ratio of total debt to total assets (capital structure), TANG ratio of fixed assets (fixed assets over total assets), SIZE size(natural log of sales), GROW growth opportunities(ratio of total market value of firm to total assets), PROF profitability(ratio of operating income to total assets) and DBKRT shows distance of any firms to bankruptcy. Distance from bankruptcy is calculated as follows: First, data of financial ratios to analysis determinants of capital structure extracted from Tadbirpardaz software and Compustat Global Vantage database and variables were calculated by Excel software and for testing hypothesis, then variables were entered to Eviews6 software. Since variables in this study are calculated among different firms and in period of 1381 to 1391 and 2002 to 2012, so data for this study is estimated pool or panel regression. For choosing between these two methods, F Limr test is used.
F Fisher statistics is used for testing linear relationship between dependent and independent variables and significance of overall regression. There are two methods for estimating panel data, fixed effects and random effects. In present study, Housman test is used to determine type of panel regression model. Durbin-Watson test is used to test autocorrelation, that if value of this statistic be in range of 1.5 to 2.5, indicating lack of correlation. If there is autocorrelation in error terms in regression model by entering break time, trying to remove autocorrelation. t-test and significance levels of them are used to determine significance of regression coefficients.

Results
Data in this study has been collected from 24 selected stock exchanges of developed countries with 6516 firms and 82 firms from Iran. Descriptive statistics was used to summarize and classify data and inferential statistics were used to analyze data.   Information of above tables is suitable to create a general knowledge about status of variables in each population, but due to lack of space, we did not interpret data of tables.
Linear relationship between independent and dependent variables in 2 populations is studied to test hypotheses. Therefore regression models that introduced have been estimated for 2 populations. Since in this study panel data was used, it is necessary before estimating models, some tests done to determine appropriate method of estimation. In table 4 assumptions of study model in each population are studied. As seen in above table, significance level of F Fisher test for all hypotheses is less than 5% of error level, so regression relation between study variables in 2 populations is accepted. F Limr test for each 2 hypothesis is below 5 %, then data is analyzed in panel method, but Housman test shows that hypothesis 1 tested in fixed effect way and hypothesis 2 using random effect. According to Levine test in developing countries, there is problem of variance anisotropy. So to solve problem of variance anisotropy, models estimate by using generalized least squares (GLS), and Durbin-Watson statistic shows that model of study hypotheses have not autocorrelation. To investigate effect of determinants of capital structure, t-statistic and calculated probability in 0.05 error level are used. Based on results in Table 5, if value of calculated t-statistics for each coefficient be larger than critical value of t-statistics 0.05 error level and calculated significance level for each of coefficients be less than 0.05, indicates that obtained coefficients are significance. Sing and amount of obtained coefficient indicates its positive or negative impact and its amount on capital structure.

Question 1 (model of developing countries):
Results indicate that except stock market development, country's GDP growth and distance from bankruptcy, all variables in developing countries have a significant relationship with capital structure and except profitability other variables have positive and linear relationship capital structure. So third question model (developing countries) provided as follows:

Question 2 (model of Tehran):
Results indicate that distance from bankruptcy and tangible assets on Tehran Stock Exchange have significant relationship with capital structure, that distance from bankruptcy has negative relationship and tangible assets has positive and linear relationship with capital structure. So fourth question model (Tehran) provided as follows:

Question 3:
To compare impact of determinants of capital structure in selected stock exchanges of developing countries and Tehran Stock Exchange, differences in regression coefficients test with t variable was used. These variables calculated as follows (Azar &Momeni, 2007).

(5)
If absolute value of t be larger than 1.96, impact of determinates of capital structure in selected stock exchanges of developing countries and Tehran Stock Exchange are different and if absolute value oft be less than 1.96 there is no difference. These comparisons are summarized in Table 6:  Table 6 show that impact of tangible assets, distance from bankruptcy and size in Tehran Stock Exchange and selected developing countries stock exchanges with capital structures is different.
Following table summarizes results of research hypotheses: There is a significant relationship between profitability and capital structure of listed firms of selected stock exchanges of developing countries. 0.0000 Confirm There is a significant relationship between distance from bankruptcy and capital structure of listed firms of selected stock exchanges of developing countries.

Reject
There is a significant relationship between size and capital structure of listed firms of selected stock exchanges of developing countries. 0.0000 Confirm There is a significant relationship between tangible assets and capital structure of listed firms of selected stock exchanges of developing countries. 0.0000 Confirm There is a significant relationship between stock market development and capital structure of listed firms of selected stock exchanges of developing countries. 0.0915 Reject There is a significant relationship between GDP growth and capital structure of listed firms of selected stock exchanges of developing countries. 0.9078 Reject

Conclusions and recommendations based on findings
Based on first research question, in developing countries levels except stock market development, country's GDP growth and distance from bankruptcy, all other variables have a significant relationship with capital structure. In developing countries should review reason that why GDP growth and distance from bankruptcy have no effect on capital structure? In future studies should identify these reasons and in real be resolved if local conditions of countries accept.
According to results of Tehran Stock Exchange, only 14% of capital structure decisions are influenced by determinants considered in this study, however, just tangible assets and distance from bankruptcy has effect on capital structure. Identifying reasons and resolve them based on local conditions is storage and high effective proposals. Managers also try to identify and eliminate reasons of lack of relationship between these factors within their firms. Compared between developing countries and Tehran Stock Exchange is seen that in size and of tangible assets are different; it means in other developing countries, impact of size and tangible assets on capital structure are different from Iran. It is desirable that a more careful study be done that where are these differences? If there is a structural problem or behavior between firms, resolve them based on local conditions.