The Relationship between Capital Structure and Profitability of Companies Listed in Tehran Stock Exchange

Abstract

The aim of this study was to investigate the relationship between capital structure and profitability of the listed companies on Tehran Stock Exchange. The research method was descriptive, correlation. Its population included all companies listed on Tehran Stock Exchange from 2004 to 2012 (n= 157). There were selected 100 companies as sample. The results showed a significant negative relationship between capital structures with return on assets ­ in all companies for the studied years. Besides, results of separating years showed a significant negative relationship between capital structures with return on assets from 2004 to 2012 for all firms. The relationship between capital structure and return on assets in different industries also indicated a significant negative correlation. There is no significant relationship between capital structure and return on equity. There is only significant relationship between both variables in groups of mining, chemical goods and products, wood, cardboard, paper, textile packaging, rubber, plastic and manufacturing parts. Direction of the relationship is positive in manufacturing auto parts and chemical goods and products; while its direction is negative in industries of rubber, plastic, wood, cardboard, paper, textile packaging and mining. Other findings showed a negative relationship between capital structure and profit to sales ratio in the studied years for all companies and industries. The relationship is significant for all companies in the studied years; while in level of various industries, there is a negative significant relationship between both variables, except in metal mineral industry.