The Relationship between Capital Structure and Firm Performance Evaluation Measures: Evidence from the Tehran Stock Exchange

The main objective of this study is to investigate the impact of capital structure on the financial performance of companies listed in the Tehran Stock Exchange. For this purpose, we studied and tested a sample of 400 firm-years among Companies Listed in the Tehran Stock Exchange in the form of 12 industrial groups during the years 2006 to 2010. In this study, Variables of return on assets ratio (ROA) and return on equity ratio (ROE) used to measure the financial performance of companies. Results suggest that there is a significant negative relationship between debt ratio and financial performance of companies, and a significant positive relationship between asset turnover, firm size, asset tangibility ratio, and growth opportunities with financial performance measures. But the relationship between ROA and ROE measures with the firm age is not significant. Also, some of the studied industries have affect on firm performance. In addition, research results shows that by reducing debt ratio, management can increase the company’s profitability and thus the amount of the company’s financial performance measures and can also increase shareholder wealth.