*Author for Correspondence. Keywords: Financial Leverage, Tax shield,beta,market value to Book value, Size, Earnings Per share changes

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1 INVESTIGATION OF THE EFFECTS OF FINANCIAL LEVERAGE, Tax SHIELD, BETA, MARKET VALUE TO BOOK VALUE AND SIZE ON EARNINGS PER SHARE CHANGES, CASE STUDY,IRAN Mostaf Radsar 1, Akbar Peyvasteh 2, Somaye Radsar 3 ad Alireza Vaziry Chime 4 1 MA i Fiacial Maagemet Islamic azad Uivarsity Uit Eslamshahr of Tehra,IRAN 2 Studet Ph.D,Public Maagemet, Tehra Uivarsity,IRAN 3 MA i Fiacial Maagemet Islamic azad Uivarsity,IRAN 4 MA i IT Maagemet, Islamic azad Uivarsity, IRAN *Author for Correspodece ABSTRACT Ecoomic developmet of ay coutry ecessitates that its citizes ivest their icome surplus. Therefore, i order to gai stocks ejoyig further productivity ad with low risk, every ivestor eeds to have a access to pertiet iformatio. Oe of the most crucial iformatio subject to aalysis by the relevat ivestors relates to EPS of compay stock share ad its stability. This study ivestigates the impacts of certai s (Fiacial Leverage, Tax shield, Beta, Market value to Book value, Size, Earigs Per share chages) o the chages happe as to the icome of each stock. To this ed, 78 compaies registered i Tehra stock market durig ( ). Simple liear ad multi-liear regressio aalyses of the data showed that, expect. There is o sigificat relatioship betwee the other s ad chages i the stock icome. Keywords: Fiacial Leverage, Tax shield,beta,market value to Book value, Size, Earigs Per share chages INTRODUCTION There is a direct relatioship betwee the developmet of coutry ad the umber of stockers. I USA, 80% of people are stockers ad ivest i Exchage. This rate has bee developed i our coutry because of maagemet system. ivestors eed iformatio to get ecoomic decisios fiacial aalysis is oe of the most importat method to choose the best optio. Modiai ad Miller applied it as a mai priciple. Do Daival, Sha Hitzma ad Lee have verified the impact of fiacial leverage o compay's taxes ad idividual taxes accordig to debts ad rights of stockers. The most famous s used i fiacial aalysis iclude: The rate of stock, sales rate,liquidity, iflatio, profit ad all items applied i balace sheet,profit ad losses. Collis, Easto ad Zimochi oski preseted some evideces relatig to the right of stockers as a basic idex for expected retur o equity.oe of the most importat idicators is the earigs per share. I this study, we will examie the relatioship betwee several s that iclude: examiig the relatioship betwee debt ad o- debt tax shield, size, systemic risk, fiacial leverage, the ratio of market value to book value per share of the profits. Factors affectig the variability of these parameters is very importat i makig ivestmet decisios. Coceptual framework ad literature : Earigs per share is ameable to chages i risk factors. Because the may chages i thecompay's corporate profits reflect the istability of the performace, all factors affectig systemic risk impact o profits.exteral factors affectig the compay i bakruptcy, so the size ca express iterest chages.compaies with more equity have less profits. Divided profit policy ad shareholders compositio have a direct impact o profits. Studies are assessed accordig to research coducted withi ad outside the coutry. Studies i abroad: Copyright 2014 Cetre for Ifo Bio Techology (CIBTech) 330

2 Da,Shie ad Elioer have studied models of equity returs as a fuctio of leverage ad taxes ivestor. They cocluded that a regressio coefficiet is iversely related to divided yield, icrease leverage ad reduced tax rates. Sog &Hog applied a database of more tha1,200 Chiese compaies. Like other coutries, Chiese compaies are icreasig leverage with icrease of firm size ad fixed assets. Icreasig profit, o- debt tax shields, growth opportuities ad shareholder director are reduced. Di Agelo ad Mazis cocluded that o- debt tax shield is as a substitute for fiacial gai. a compay with o-debt tax shield uses fewer debt.walto has reviewed all compaies listed o the New York Stock Exchage over the years. Research shows that reducig the ratio of divideds paid divided by the correlatio coefficiet betwee two s represets a compromise betwee the two s. Miller ad Muziai showed that taxes affect the capital structure. Corporate tax rate should be greater use of debt i the capital structure. Studies i iterior : The results showed that there was a sigificat relatioship betwee the ratio P/A ad the expected retur to shareholders i the three idustries is studied. The research was coducted uder the aalytical relatioship betwee earigs yield of shares i listed compaies i Tehra Stock Exchage.Bayati revealed i a study titled Evaluatio of firm size ad the ratio of book value to market value of the stock raged i Tehra Stock Exchage that market factors, firm size ad the ratio of market value to book value are the three major factors i the stock market. I aother study comes to the coclusio that a very small percetage chages are relative to the divided per share of the tax rate. I short, the tax rate has little impact o the divided profit policy.i a research o the effect of earigs forecasts by maagemet o the stock price, the results showed that the profit per share cotet does ot have iformative cotet. We ca coclude that Ira's market lacks efficiecy ad earigs per share has o iformative cotet. I aother research as the relatio of accoutig earigs ad stock retur portfolio optimizatio, the result shows that there is a sigificat relatioship betwee accoutig earigs ad stock returs o portfolios optimized ad the correlatio coefficiet is positive.icrease ad decrease is ot equal ad other ecoomic ad political factors have a impact. A research o corporate profit forecasts, the researchers cocluded that there is a sigificat relatioship betwee corporate profit forecasts by age, size, leverage, stock prices i firms. Commuity research sample ad data collectio practices The populatio of all firms that are arraged accordig to the umber of days the stock traded i the mai hall. 69 tradig days has bee doe that these compaies are part of the statistical commuity.the umber of sample firms iclude 198 firms with the above coditios. All compaies must submit fiacial statemets as audited, ed of period ad o- cosolidated. Due to these ad existig applicatios, 78compaies were selected as samples. Research s : Variables are: Earigs per share : Earigs per commo share, as compared to et icome to commo shareholders owed the issued umber of ordiary shares durig the period. EPS = Net Icome Preferred Stock Divided Weighted average umber of ordiary shares issued durig the period Copyright 2014 Cetre for Ifo Bio Techology (CIBTech) 331

3 No- debt tax shield : the results of o- debt tax depreciatio tax shield tha persoal taxes. NDTS = Adjustmets - Accumulated depreciatio of assets sold Accumulated depreciatio + Depreciatio Total assets Debt tax shield is a icome due to iterest expese purchased as iterest paymets ad tax rate is grated to the compay. Corporate tax rate ( Log-term debt / Fiacial Costs = DTS Returs: Total Icome eared from ivestmets tha ivestig i a course that is cosumed durig that period. R it ( P P 1) D P 1 it it it it Systemic risk: the beta of a portfolio idicates that the rate of retur is close to the rate of retur o ivestmet i a diversified portfolio Systematic risk is calculated with the followig equatios: These s iclude: Rmt Rm t 1 R i Rit t 1 2 ( R ) m t 1 ( Rmt Rm ) COV ( Ri, Rm) 2 ( R ) m Yields ad cost efficiecy idices for m i period t - Rm: Average idex yields ad Rit: retur o equity for firm I i period t Leverage: the percetage chage i the depedet is divided by the percetage chage i the idepedet, the related leverage is obtaied. Fiacial leverage ratio is the percetage chage i earigs per share divided by the percetage chage i earigs before iterest ad taxes.( Book value of equity + total assets ) divided by ( Curret Liabilities + Log Term Debt ) = fiacial leverage Research hypothesis : This study examies the relatioship betwee chages i earigs per share of chages. Chages iclude: fiacial leverage, systemic risk, debt ad o- debt tax shield, size ad the ratio of market value to book value per share. Therefore the research hypothesis is as follows : 1 - Level of debt tax shield affects the chage i earigs per share 2 The value of o- debt tax shield affects the chage i earigs per share. Copyright 2014 Cetre for Ifo Bio Techology (CIBTech) 332

4 3 - The impact of compay size o the chage i earigs per share. 4 - Systematic risk affects the chage i earigs per share. 5-chages i fiacial leverage effect o earigs per share. 6 - The ratio of market value to book value per share is based o earigs Chages. Aalysis of data Two methods were used i this study iclude the method ad path aalysis models ( liear regressio model)-usig simple liear regressio model The path aalysis ( liear regressio model ) I this way, the relatioship amog the s is tested. The coceptual model preseted i this study is based o the path aalysis diagram.accordig to the above diagram that illustrates the relatioships betwee idepedet ad depedet s. relatioship betwee each of the idepedet s o the depedet is marked with the symbol p.based o this model, the fiacial leverage has impact o earigs per share because has effect i systematic risk. Also, the tax shield affect o the chage i earigs per share ad has a idirect effects o systemic risk.chages i o- debt tax shield of iterest is affected by the ratio of market value to book value of equity ad directly.ordiary least squares method is used to estimate bi-variate ad multivariate liear regressio model. Y t = β o + β 1 X 1t + β 2 X 2t +. + β k X kt + μ t Simple liear regressio : Simple liear regressio was used to aalyze the effect of idepedet s o the depedet s. I this aalysis, the relatioship betwee the s is aalyzed by settig equatio is obtaied i terms of the values of the depedet that the depedet values are achieved by values ad coefficiet or idepedet s. Y t = β o + β 1 X t + μ t Data Aalysis ad test research hypotheses: This sectio examies the relatioship ad impact of idepedet s o the depedet to determie the relatioship betwee parametersto test the research hypotheses. The data are calculated usig Excel software ad are aalyzed by the software spss Table 1 shows the descriptive statistics of the s: Table (1) Descriptive statistics of research s Average Media Stadard deviatio Skewess Elogatio Research Variable Earigs Per share chages Debt tax shield No-debt tax shield Size Beta Fiacial Leverage E E E Market value to Book value Copyright 2014 Cetre for Ifo Bio Techology (CIBTech) 333

5 Average shows the average data. Data show that 50 percet of data are less tha middle umber i the data set, ad 50% higher tha the umber i the middle of data set. proximity shows a close coicidece betwee the mea ad media of the data. The stadard deviatio shows the dispersio ad, ultimately, the skewess idicate asymmetry idex. The results are as follows : accordig to the research hypothesis to coclude that the is ot sigificat at the 95%.so assumig H1 is ot accepted. Regressio results show that the probability or sigificace is equal to The coefficiet of determiatio is equal to ad the value of t forthe debt tax shield is equal to that the statistic is equal to zero i the o- rejectio of the ull hypothesis. Table ) 2( Betwee test results ad chages i debt tax shield earigs per share accordig to the research hypothesis, o- debt tax shield effect o earigs per share chage. Studies idicate that the is ot sigificat at the 95%.Thus, hypothesis H1 is rejected. Regressio aalysis shows that the probability or sigificace is equal to The coefficiet of determiatio is equal to The amout of o- debt tax shield is equal to t The t -statistic is zero. Also, t is equal to 1/27. This amout is equal to zero at the 95% cofidece Table ) 3( The relatioship betwee o-debt tax shield test results ad chages i earigs per shar accordig to the research hypothesis, the size is effective i the earig chage per share, but the degree achieved sigificace for this idicates that this is ot sigificat at the 95%. Thus, hypothesis H1 is accepted. Regressio aalysis shows that the probability or sigificace is equal to The coefficiet of determiatio is equal to 0.001, which is very low. The t -statistic is equal to , which is equivalet to the failure to reject the ull hypothesis. Table ) 4( The relatioship betwee the size of the test results ad chages i earigs per share As stated i hypothesis, the systemic risk has impact the earig chage per share.variable is sigificat at 95%. The hypothesis H1 is accepted. The results of the regressio aalysis shows that the probability or sigificace is equal to The coefficiet of determiatio is equal to 0.016, ie less tha 2% of thevariability. Watso camera statistic values is equal to 2, which shows the lack of residual autocorrelatio regressio as oe of the hypotheses. Table (2)Betwee test results ad chages i debt tax shield earigs per share Adjusted Sigificace Durbi - Coefficiet of OF coefficiet of Watso determiatio Correlatio determiatio 0/646 0/212 1/695-0/002 0/001 0/023 Debt shield tax Table (3)The relatioship betwee o-debt tax shield test results ad chages i earigs per share Adjusted Coefficiet Sigificace Durbi - OF coefficiet of of Watso Correlatio determiatio determiatio No-debt tax 0/737 0/113 1/694-0/002 0/000 0/017 shield Copyright 2014 Cetre for Ifo Bio Techology (CIBTech) 334

6 Table (4) The relatioship betwee the size of the test results ad chages i earigs per share Adjusted Coefficiet Sigificace Durbi - OF coefficiet of of Watso Correlatio determiatio determiatio 0/475 0/512 1/697-0/001 0/001 0/036 Size Table (5) Relatioship betwee systematic risk test results ad chages i earigs per share Coefficiet Adjusted Sigificace Durbi - of OF coefficiet of Watso determiatio Correlatio determiatio 0/012 6/347 1/753 0/014 0/016 0/127 Systemic risk T-statistic is equal to 0.323, which is equal to zero, idicatig o sigificat at 95% cofidece. Relatioship betwee systematic risk test results ad chages i earigs per share Table (5) As stated i the hypothesis, the fiacial leverage has impact o chages i earigs per share,to coclude that the is ot sigificat at the 95%. The hypothesis H1 is ot accepted. The results of the regressio aalysis shows that the probability or sigificace is equal to The coefficiet of determiatio equal to 0.001, ie 0.1% of the depedet chages is expressed by idepedet or fiacial leverage. T value for a fiacial leverage is equal to that t value is equal to zero. Table (6) Chages i test results betwee fiacial leverage ad earigs per share As stated i hypothesis,the market value affect o book value.sigificace of this idicates that the is sigificat at 95 percet. The hypothesis H1 is accepted. The results of the regressio aalysis shows that the probability or sigificace is equal to The coefficiet of determiatio is equal to T value for the ratio of market value to book value is equal to 2.78 ad the value of t is equal to zero. The value of t is equal to zero at the 95% cofidece. Table(7) Test the relatioship betwee the ratio of market value to book value ad earigs per share of chages. The path aalysis (liear regressio model) I this model, we aalyze each of the s i the coceptual model as a idirect effect of fiacial leverage, o- debt tax shields ad the size o depedet. Table 8 shows the sigificat ifluece of the idepedet s o the depedet. Table (6) Chages i test results betwee fiacial leverage ad earigs per share Adjusted Sigificace F Durbi - Coefficiet of OF coefficiet of value Watso determiatio Correlatio determiatio 0/561 0/339 1/686-0/002 0/001 0/030 Fiacial Leverage Copyright 2014 Cetre for Ifo Bio Techology (CIBTech) 335

7 Table (7) Test the relatioship betwee the ratio of market value to book value ad earigs per share of chages Adjusted Coefficiet Sigificace Durbi - OF coefficiet of of Watso Correlatio determiatio determiatio The ratio of 0/006 7/716 1/690 0/017 0/020 0/141 market value to book value Fiacial leverage Debt tax shield Beta Chages i earigs per share No-debt Sprmalyaty The ratio of market value to book value /842 Form No (1) Coceptual model (Numerical) Size Table (8) Reviews, aalyzes ad coclusios related s based o path aalys is Results The t The beta The idepedet s Depedet غير معنادار -0/23-0/11 Debt tax shield غير معنادار 0/66 0/034 No-debt Sprmalyaty معنادار -6/09-0/585 Size Chages i earigs غير معنادار 0/62 0/032 Systematic risk per share غير معنادار 1/21 0/063 Fiacial leverage معنادار 6/57 0/615 The ratio of market value to book value Testig models ad methods ( fixed effects model ) ad ( radom effects model ) I this sectio we estimate a geeral model for the aalysis of the paeli 19 ad also to ivestigate the ifluece of fixed effects ad radom effects of fiacial leverage o profits betwee differet s. Copyright 2014 Cetre for Ifo Bio Techology (CIBTech) 336

8 Usig this method, due to the ature of the data. For the aalysis of pael data are collected temporarily - util 20. These data do ot preserve the idepedece of observatios. Because each compay i differet years, there are several views that are depedet o each other. I this aalysis, the data is multiplied by the umber of years. The model is as follows : Table (9) Research hypothesis model CONCLUSION AND RECOMMENDATIONS The results showed that the chages i tax policy will ot affect earigs per share. Decliig profits chages has made tax capacity easier for compaies ad specifies the govermet's share achieved by tax reveues. Therefore it is expected the chages have lower profits tha compaies that have higher costs i the cost structure.the productive capacity affect o the. If a firm has fixed assets ad fails to make use of their productive capacity, thus these assets will remai uused. However, that is depreciatio expese for each year of the statemet ( profit ad loss ). Compaies with depreciatio expese ad accumulated depreciatio, fixed assets are expected to icrease A compay with high fixed assets, if ot the use of productio capacity, thus the value of these assets will remai uused. However, we are cosiderig the depreciatio charge each year i statemets(profit ad loss) The results idicate that firm size will have a positive impact o the share of profits. The results idicate that icome is affected by chages i systemic risk. Although it is expected that this chage is positive, but actually has a egative impact. Compaies with profits chages have less systemic risk. Accordig to research, compaies with fiacial supplemet through debt have ot obtaied higher earigs. Costat rate of iterest o loas take from baks i the coutry, makes it easier to pla for repaymet Icreased fiacial leverage i the capital structure does ot affect the risk of bakruptcy of compaies. So accordig to the regressio model, the chage i fiacial leverage affect profits directly ad idirectly. O the other had, compaies with a market value less tha the book value, the chages are less profitable. Compay performace is oe of the factors that icrease the book value of the compay's shares. Sice profit growth reflects the stregth profitability, positive chages idicate that earigs above book value.there are may factors affectig the beefit chages. For example, whe compaies reduce or icrease its commo stock, it would have a impact o other stakeholders. Whe the capital stock is chaged, will alter its profits ad profitability are difficult to compare differet eras. Studies i Tehra Stock Exchage, the stock price declies after divided distributio. This situatio will cotiue for some time to come back to the origial price. Shareholders thus does ot vary. The results obtaied i this study, the followig suggestios are offered : Practical suggestios : -Corporate tax rate is stepped so that compaies with higher profits pay higher taxes. So private compaies are supported by lower icome ad tax justice is established. - The tax is grated to stocks divideds profits so that compaies distribute less profits amog shareholders ad the profit will be ivested i the compay for future opportuities. Followig offers : 1 Review the effect of icreasig the compay's capital o stock profit chages 2 Review the effect of tradig volume o profit chage per share. Copyright 2014 Cetre for Ifo Bio Techology (CIBTech) 337

9 Table (9) Research hypothesis model Model There is o sigificat model fit models There is o sigificat model fit models There is o sigificat model fit models There is o sigificat model fit models There is a sigificat model is the appropriate model Probability of F The coefficiet of determiatio Housma test Radom effects model is appropriate ull hypothesis is cofirmed Radom effects model is appropriate ull hypothesis is cofirmed Radom effects model is appropriate ull hypothesis is cofirmed Radom effects model is appropriate ull hypothesis is cofirmed Fixed effects model is appropriate ull hypothesis is rejected Chow test The ull hypothesis is The ull hypothesis is The ull hypothesis is The ull hypothesis is cofirmed by the effect of the model is ot appropriate The ull hypothesis is The ull hypothesis is Debt tax shield No-debt Sprmalyaty Size Systematic risk Fiacial leverage The ratio of market value to book value REFERENCES ALOKE GHOSH, ZHOYANG GU, PREM C. JAIN, Sustaied Earigs ad Reveue Growth, Earigs Quality, ad Earigs Respose coeffic rets Review of Accoutig Studies, 10, 33-57, (2005). Arme Hovakimira, Gayae Hovakimia, Hassa, Tehraia Getermi ts of target Capital atructure; The Case of dual debt ad equity issaes Joural of Fracial E Coomics 71 (2004) O17- O40. Badi H. Baltagr, Ecoometric Aalysis Pael Data, Joh Wiley ad sos, New York, (1995). Bradley, M., Jarrel G., ad ki, E.H., (1984). o the existece of a optimal capital structure: Theory ad evidece. Joural of Frace 39, Brace K Billigs, Revisitig the relatio betwee the default risk of debt ad the earigs respose cofficiet the Accoutig Review; oct (1999); 74, 4; ABI/ INFORM Global Pj Da Dhaliwal, Shae Heitzma, oliver zhe li (a2005). the Effect of Taxes ad Leverage o the Associatio betwee Earig sad Returs Collego of Maagemet uiversity of Arizoa, Da Dhaliwal, Shae Heitma, Oliver zhe Li (b2005), Taxes, Leverage, ad the cost of Equity Capital uiversity of deta a the earigs respose coefficiet, The Accoutig Review; Apr (1994); 69, 2; ABI/ INFORM Global. Pg Joh R.Graham How Big Are the Tax Beefits of Debt? jue 28, (1999). Jo Bakija, Williams College, The Effect of Taxes o Poxt folio Choice: EVIDENCE From PANEL DATA SPANNING the Tax REEORM ACT OF (1986). Departmat of Ecoomics Williamstow, octobre, 2000 MA Juha Juttila, Juha- Pekka kalluki, Aki karja, Maa Martikaie, Stock Market respose to aalysts Perceotios ad earigs ia techology- itesive eviromet Iteruatioal Review of Fracial Aalysis 14 (2005) Copyright 2014 Cetre for Ifo Bio Techology (CIBTech) 338

1 Random Variables and Key Statistics

1 Random Variables and Key Statistics Review of Statistics 1 Radom Variables ad Key Statistics Radom Variable: A radom variable is a variable that takes o differet umerical values from a sample space determied by chace (probability distributio,