Studying the Impact of Firm Characteristics on the Relationship between Product Market Competition and the Cost of Capital (Case study: Companies Listed in Tehran Stock Exchange)

Abstract

The main objective of this study was to investigate the characteristics of companies on the relationship between product market competition and capital costs of the companies listed in Tehran Stock Exchange. Therefore, the Herfindahl Hirschman index was used to measure competition in the product market. Furthermore, the characteristics of the companies were examined from three perspectives capital structure, disclosure quality and profitability. The population of this research was all companies listed in Tehran Stock Exchange and the sample consists of 81 companies listed in Tehran Stock Exchange which were studied from 2005 to 2012. Multivariate linear regression analysis within the framework of Baron and Kenny (1986) was used to test the hypothesis. The results indicated a significant and inverse relationship between the competition in the product market, capital structure and profitability of companies operating in the Tehran Stock Exchange and a significant and positive relationship between product market competition and quality of information disclosure. Moreover, the results showed a significant and negative correlation between the competition in the product market and the cost of equity. Also, the results showed that variable quality of information disclosure has minor role in mediating the relationship between product market competition and the cost of equity, but the company does not have a variable capital structure and profitability.