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Examining the impact of financing methods and working capital management on value of the listed companies in Tehran stock exchange.

INTRODUCTION

Firms use various financial resources to implement their profitable projects and achieve to maximum yield in order to increase their shareholders' capitals. The firm capability in determining an organization's internal and external resources to providing capital and suitable financial plans is the main development factor for each company. This financing resources and applying them is a factor may influence on operational performance of firms. On the other hand, financing is an ordinary activity in big firms. Firm management has various resources and different financing methods to providing required cash for capital cost and firm performance. Financing can be implemented through share or debt securities issuance which their difference is evident [2].

Working capital management is one of the most essential fields in financial management and organization's management, because it directly impact on liquidity and profitability of firms. There is probability of bankruptcy for firms that are exposed to unsuitable working capital management, even positive profitability. Working capital management deals with current assets and debts. Current assets of a firm make significant part of total assets. Excessive levels of current assets may leads to less investment yield than normal index. However, firms with fewer current assets would suffer from deficiencies and problem during normal operations.

Caballero et al, [4] investigates the relation between working capital management, corporate governance and firm value. Their findings indicated that there is a positive significant association between working capital management and performance, as working capital management gets increased in one unit; the firm performance would be increased too. Alemida et al [1] examined the relation between financing, working capital management and value of Brazilian firms. The results demonstrated that there is a weak significant relationship among working capital management and firm value, and significant relation between financing and firm value. Ki Schinic & Laplelante et al, (2013) examined the relation between working capital management and shareholders' value. The results showed that there is a significant relation between working capital management and shareholders' value and it increases shareholders' value.

In this article, generally, we try to examine the impact of the association between financing methods and working capital management on value of the listed companies in Tehran stock exchange. It seems that the answer to this question can be very effective for executive and non-executive of companies, potential, actual and institutional investors, independent accountant as well as other stakeholders.

Research hypotheses:

* There is a significant relation between debt financing and value of the listed companies in Tehran stock exchange.

* There is a significant relation between issue financing and value of the listed companies in Tehran stock exchange.

* There is a significant relation between retained eearnings financing and value of the listed companies in Tehran stock exchange.

* There is a significant relation between average collection period and value of the listed companies in Tehran stock exchange.

* There is a significant relation between inventory turnover in days and value of the listed companies in Tehran stock exchange.

* There is a significant relation between average payment period and value of the listed companies in Tehran stock exchange.

* There is a significant relation between average collection period and value of the listed companies in Tehran stock exchange.

* There is a significant relation between inventory turnover in days and value of the listed companies in Tehran stock exchange.

* There is a significant relation between cash conversion cycle and value of the listed companies in Tehran stock exchange.

Research population and statistical sample:

The population of the research is composed of all listed companies in Tehran stock exchange which are accepted during 2008 to 2012. The firms will be accepted which have the following condition:

1) Their financial year ends in 19/3/...

2) They should have been listed during 2008 to 2012.

3) Their financial year should have not been changed during 2008 to 2012.

4) Their required data should be available.

There have been selected 83 firms based on systematic omissive method.

Operational definition of the research's variables:

Average Collection Period (ACP):

It is calculated from dividing accounts receivable into sale multiplied by 365 as independent variable.

Inventory Turnover In Days (ITID):

It is calculated from dividing inventories into cost price of sold product multiplied to 365 as the independent variable.

Average Payment Period (APP):

It is calculated from dividing accounts receivable into cost price of sold product multiplied to 365 as the independent variable.

Cash Conversion Cycle (CCC):

It is calculated from debt payment period minus total collection period and inventories turnover in days as the independent variable (collection period +inventories turnover in days - debt payment period).

Debt Financing (FDEBT):

[D.sub.t] = [d.sub.t] - [d.sub.t-1]

Where, Dt is debt financing in period t and dt indicates debt financing in period t and dt-1 debt financing in period t-1.

Stock Issue Financing (FSTOCK):

S = ([C.sub.1] - [C.sub.0]) - A

Where, S is stock issuance financing, C0 is capital amount before increased capital, C1 is capital amount after increased capital and A indicates capital increasing percent obtained from shareholders' cash resources.

Retained Earnings Financing (FK4RNINGS):

E - ([C.sub.1] - [C.sub.0]) - B

Where, E is retained earnings financing, C0 is capital amount before increased capital, C1 is capital amount after increased capital and A demonstrating capital increasing percent obtained from shareholders' cash resources.

Firm Value:

We use from the equation by "Bay" et al (2004) about value measuring :

Tobin's Q = (MVCS + BVPS + BVLTD + BVINV - BVCL - BVCA)/BVTA

Where, MVCS is equal with market value of common stock, BVPS is book value of preferred stock, BVLTD is book value of long-term financial facilities, BVINV is book value of inventories, BVCA is book value of current assets and BVTA is book value of total assets.

Research's control variables:

LASSETS: Logarithm of total assets.

CSRATIO: Book value of equity to sale ratio.

ISRATIO: Operating profit to sale ratio.

LEVERAGE: Book value of total loans to total assets.

Research's regression model:

A desirable model is one that reflects all aspects of main and major phenomenon, although it is not comprehensive and complex as real world, it indicates main relations of components and its effects in order to provide a simple and suitable means for an analyst. We use the below model in this research:

[MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII]

Data analysis method:

In this research, panel data are used to test the hypotheses. In this method, time series (studied years) and sectional (studied firms) data are combined together. Panel data are used for increasing observation number, enhancing freedom degree, decreasing heteroskedasticity and studying changes dynamics. To estimate efficiency of a regression model using panel data, one of the models of common effects, fixed effects and random effects are selected by suitable tests. F-limer test is used for selecting between common effects and fixed effects model. If fixed effects model is selected, then Hausman test is applied to select between fixed effects and random effects models. Also, error term autocorrelation model, heteroskedasticity and data normality will have been examined. To describe the description power of descriptive variables, Adjusted R2 is used and Fisher F-statistics is used to examine the efficiency of the model. As well, EXCEL and EVIEWS 7 software are applied to conduct statistical analyses.

Results:

Research first hypothesis:
Table 1: Central and distribution indexes of each hypothesis.

Variables                      Min.      Max.     Average       SD

Firm value                    0.251     4.328      1.996      0.276
Debt financing                10542    6253379    2005417    154.236
Stock issue financing         426327   55102447   26340921   1063.314
Retained earnings financing   26541     922635     418627    102.155
Average collection period       5        107        49.6      0.227
Average turnover in days        3         86        42.7      0.406
Average debt payment period     7         99        53.2      0.581
Cash conversion cycle           9        120        76.3      0.421
Firm size                     11.415    39.623     21.547     4.269
Book value of equity to       0.102     4.263      1.745      0.448
  sale ratio
Operating profit to sale      0.073     0.586      0.196      0.672
Financial leverage            0.082     0.926      0.576      0.326


Determination of model estimation method- Significance test of fixed effects method:

F-statistics test:
Table 2: The results of F-statistics test.

Description                Statistics   Freedom degree   Probability
                             value

Cross-section F             1.958662          82           * 0.004
Cross-section Chi-square   141.041573         82           * 0.001

* 5% error level


Hausman test:
Table 3: The results of Hausman test

Description       Statistics value   Freedom degree   Probability

Cross-section F       7.815229             13           * 0.002

* 5% error level


According to the table 2 and 3, the results of two conducted tests (F & Hausman) is less than 5% in both tests, thus fixed effects method should be used in related regression model.

Research's hypotheses tests:
Table 4: Hypothesis regression test.

Variable                               Impact      Estimation
                                     coefficient   deviation

Fixed                                   0.371        0.614
Debt financing                          0.109        0.558
Stock issuance financing                0.286        0.216
Retained earnings financing             0.519        0.419
Average collection period              -0.267        0.705
Average turnover in days               -0.167        0.646
Average debt payment period            -0.418        0.221
Cash conversion cycle                  -0.331        0.185
Firm size                               0.607        0.349
Book value of equity to sale ratio      0.234        0.416
Operating profit to sale                0.397        0.278
Financial leverage                     -0.452        0.561

Variable                             t-statistics   Significance
                                                       level

Fixed                                   2.163         * 0.007
Debt financing                          2.516         * 0.000
Stock issuance financing                2.334         * 0.000
Retained earnings financing             1.962         * 0.016
Average collection period               -2.278        * 0.004
Average turnover in days                -2.613        * 0.000
Average debt payment period             -1.862        * 0.026
Cash conversion cycle                   -2.149        * 0.006
Firm size                               1.334          0.075
Book value of equity to sale ratio      1.845         * 0.028
Operating profit to sale                1.096          0.081
Financial leverage                      -2.507        * 0.000

* 5% error level

Table 5: Explanation and significance ability of whole model.

R                                                 ANOVA

Coefficient of       Adjusted        DW       F        Sig.
determination      coefficient
                 of determination

0.437                 0.426         1.922   42.627   ** 0.000

** 1% error level


Regarding the table 4, since Durbin-Watson statistic test value is determined among 1.5 to 2.5, lack of correlation between errors is not rejected and regression can be used. Due to F value test is significant (42.627) in error level less than 0.01, it can be concluded that panel research regression model which composed of independent, control and dependent variables is a suitable model and independent and control changes can describe firm value changes. The adjusted coefficient of determination is 0.318; indicating 42.6% of all changes of dependent variable are depended on independent and control variables of this model. The final model of the research can be written as:

[MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII]

Conclusion and recommendations:

The aim of the study is to examine the financing and working capital management methods on value of the listed companies in Tehran stock exchange. The findings showed that there is a significant relation between debt financing and firm value of the listed companies in Tehran stock exchange. There is a significant association stock issuance financing and firm value of those companies. Also, there is a significant relationship among retained earnings financing and value of those companies. As well, there is a significant relation between average collection period and value of the listed companies in Tehran stock exchange. There is a significant relation between average inventory turnovers in days and value of those firms. Be sides, there is a significant association average debt payment period and value of those companies. Finally, there is a significant relationship among cash conversion cycle and value of the listed companies in Tehran stock exchange.

Regarding to the results of the first three hypotheses (financing methods on firm value), it is recommended to the real and potential investors, managers, accountants, auditors, agents and other stakeholders that pay attention to the following factors when they want to make decisions:

(1) Debt financing

(2) Stock issuance financing

(3) Retained earnings financing

Because each method can have positive relation with firm value. According to the four hypotheses of the second hypothesis (working capital management on firm value), it is recommended to the real and potential investors, managers, accountants, auditors, agents and other stakeholders that pay attention to the following factors when they want to make decisions:

(1) Average collection period

(2) Average inventory turnover in days

(3) Average debt payment period

(4) Cash conversion cycle

Because each factors of working capital management can have positive relation with firm value.

ARTICLE INFO

Article history:

Received 25 September 2014

Received in revised form 26 October 2014

Accepted 25 November 2014

Available online 29 December 2014

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(1) Mahnaz Moslemi Parvaneh and (2) Ali Nabavi Chashmi

(1) Department of Financial Management, Ayatollah Amoli Branch, Islamic Azad University, amol, iran

(2) Department of Financial Management, Babol Branch, Islamic Azad University, babol, iran

Corresponding Author: Mahnaz Moslemi Parvaneh, Department of Financial Management, Ayatollah Amoli Branch, Islamic Azad University, amol, iran, Tel: 00989196656311 E-mail: Mahnazmmp@yahoo.com
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Author:Parvaneh, Mahnaz Moslemi; Chashmi, Ali Nabavi
Publication:Advances in Environmental Biology
Article Type:Report
Geographic Code:7IRAN
Date:Nov 1, 2014
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