Relationship between Capital Structure, Free Cash Flow and Performance in Companies Listed on Tehran Stock Exchange

Abstract

Financial performance criteria are a part of a company's performance criteria, which are used for measuring financial performance. stakeholder groups such as the government, customers and public should enter the scene and with taking advantage of various mechanisms should impose their goals on these companies. The other perspective claims that for-profit companies, considering the effort they make toward obtaining profit, are considered as the best tool for demanding economic productivity and efficiency and that, it is not necessary for them to consider any other goals other than the goals of capital owners (increasing the company's value). This indicates to the importance of performance of companies and in order to obtain maximum outcome in this regard, the effective factors on company performance should be studied carefully.  To this end, the aim of the present study is to explore the relationship between capital structure, free cash flow and performance of companies listed on Tehran Stock Exchange and for this purpose, all the companies listed on Tehran Stock Exchange during the time period of 2007 - 2013 were selected by using systematic elimination sampling method as research sample and were studied. Finally, research data were analyzed by multiple regression test and results indicated that there is a significant relationship between equity ratio of a company and its performance. Also, there is a significant relationship between debt ratio (capital structure) of a company and its performance and there is a significant relationship between free cash flow and company performance.  Finally, there is no significant relationship between debt ratio (capital structure) and free cash flow in a company.