CAPITAL STRUCTURE DETERMINANTS INSIDE MULTINATIONAL AND DOMESTIC COMPANIES, EVIDENCE FROM IRAN

Abstract

This study investigates the effects of multi-nationality of firms on capital structure. In addition, determining factors of capital structure of multinational companies and domestic companies listed in Tehran’s stock exchange have been investigated. In this regard, a number of 712 firms with data belonging to 2008-2013 have been subjected to our analyses. In this research ratio of long-term debts to sum of long-term debts and market value of equity has been considered as the index of capital structure. In addition the t-test and the Mann-Whitney test have been incorporated for expression of the difference between averages of ratios of long-term debts of domestic and multinational companies. In order to determine the determinant factors of capital structure a set of variables including Profitability, growth opportunities, value of collateral assets, firm size, ratio of interest payments, non-tax debts, tax rates, foreign sales, business risk and cost of bankruptcy have been used as control variables of the study. Through application of the multivariate linear regression model, we have tried to provide a suitable model for both groups. Results have shown that the ratio of long-term debts in multinational firms is significantly lower than domestic firms. In addition, results of the OLS regression have shown that there exists a fundamental difference between capital structure determinants among domestic and multinational companies. For both groups profitability, growth opportunities, value of collateral assets and firm size were considered as meaningful determinant factors of capital structure. For domestic companies, the dividend payout was also found to be a significant determinant of capital structure. Furthermore, for a multinational company, non-tax debts, tax rates and exports (foreign sales) were found to be meaningful determinants of capital structure. Nevertheless, business risk and bankruptcy costs were not found to be meaningful determinants of capital structure for neither of MCs or DCs.