THE RELATIONSHIP BETWEEN FIRMS GROWTH OPPORTUNITIES AND CHANGES RATIO IN RETAINED EARNINGS IN LISTED COMPANIES IN TEHRAN STOCK EXCHANGE

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1 Indian Journal of Fundamenal and Applied Life Sciences ISSN: (Online) An Open Access, Online Inernaional Journal Available a hp://hp:// 204 Vol. 4 (S) April-June, pp /Darabi e al. Research Aricle THE RELATIONSHIP BETWEEN FIRMS GROWTH OPPORTUNITIES AND CHANGES RATIO IN RETAINED EARNINGS IN LISTED COMPANIES IN TEHRAN STOCK EXCHANGE * Roya Darabi, Reza Aaeizadeh 2 and Hossein Abdi 3 Assisan Professor, Islamic Azad Universiy, Souh Tehran Branch, Tehran, Iran 2 Maser of Accouning, Islamic Azad Universiy, ShahreQods Science and Research Branch, Tehran, Iran 3 BS in Accouning, Accouning Supervisor (Azad Raye Amin Audi insiue, iacpa) *Auhor for Correspondence ABSTRACT The purpose of his research is o invesigae he relaionship beween firm growh opporuniies and Changes raio in reained earnings of companies. This sudy is a lieraure sudy and analysis - scienific, and is based on he analysis of panel daa (panel daa). In his sudy, he financial daa of 0 companies lised in Tehran Sock Exchange during he period 2006 o 20, has been reviewed (606 companies - he Year). To analyze he resuls of research, sofware 20 Spss, Eviews 7, Miniab6 are used. Resuls of sudy relaed o confirm firs hypohesis indicaes ha here is significan and inverse relaionship beween company's growh opporuniies and Changes raio in reained earnings of companies. Keywords: capial srucure, he company's growh opporuniies, changes raio of reained earnings, panel Daa INTRODUCTION Undersanding and awareness of he effecs of company growh on he changes raio in deb and reained earnings of companies, seems necessary for managers and sakeholders. Because, on he one hand, i helps managers in fulfilling responsibiliies include deciding on he choice of he appropriae mehod of financing, and he maximum value of he company, which is goal of any insiue and profi organizaion, and he oher hand, i brings knowledge and awareness for sakeholders and invesors in he decision making (Arab, 2007). Mos financial managers agree ha concep of leverage is he mos imporan financial conceps, and have a special place in he capial srucure. A company ha does no have any deb is a company wih capial srucure. Bu in realiy, we do no have such a company, and all companies use leverage differen raios. Bu he quesion is: how much a firm should use deb in is capial srucure. Are here specific raes for deb in he capial srucure or no? (AaeiZadeh, 204) Companies' managers are looking o how hey can balance he changes raio of deb and reained earnings in companies o maximize shareholder value in he marke, in oher words, o maximize shareholder wealh, and ulimaely cause rapid growh of he company. Finally, he main research quesion is wheher here is relaionship beween company's growh opporuniies and Changes raio in reained earnings. The main objecive of his sudy is o invesigae he relaionship beween firm growh opporuniies and Changes raio in reained earnings of he companies. REVIW OF LITERATURE Xuepingand Chow (202) noed ha hey have discussed in heir sudy "he invesigaion of various facors in he company's growh and sabiliy of capial srucure", and in heir sudy have found ha differen ypes of companies growh (he raio of marke value o book value and angible asses) van be considered as an applicaion poin of view in increasing he financial leverage raio imporance. Copyrigh 204 Cenre for Info Bio Technology (CIBTech) 536

2 Indian Journal of Fundamenal and Applied Life Sciences ISSN: (Online) An Open Access, Online Inernaional Journal Available a hp://hp:// 204 Vol. 4 (S) April-June, pp /Darabi e al. Research Aricle Sabiliy ypes of company's growh which is due o some facors such as syles of invesmen in angible asses versus angible asses, and i is possible which hey have significan differences during growh and recession. From an economic and marke perspecive, providing recovery and growh in companies is due o he increase of deb or capial. They also found ha he origin of high growh firms ypically is increase invesmen and financing given policies of managers relaed o he growh. Wiedemann e al (2002) noed ha in heir sudy, hey were reviewed he relaionship beween company growh opporuniies wih company's deb policy for Hong Kong Sock Exchange in he financial period Which came o he conclusion ha here is a posiive relaionship beween he growh opporuniies of Hong Kong lised companies, and deb (financial leverage). Nissim and Penman (2003), have aemped o analyze he leverage and impac of financial leverage, Deb leverage arising from operaions and oal leverage on he profiabiliy and raio P/B, and reached he conclusion ha, deb leverage due o he financial operaions han financial leverage has he more posiive impac on profiabiliy and he raio P/B. AaeiZadeh and colleagues (204), in heir sudy examined he relaionship beween firms' growh opporuniies and changes in deb raio of lised companies in Tehran Sock Exchange, and he resuls of he sudy show a significan and direc relaionship beween growh opporuniies and he raio of changes in deb. Samadi e al (203), in heir sudy have analyzed he impac of growh opporuniies on financial leverage for firms lised on he Sock Exchange during he period 2000 o 200. In his research, wo hypoheses of nonlinear relaionship beween growh opporuniies and financial leverage, and also he gap beween acual and arge leverage (opimal) is used, he findings of his sudy sugges ha a nonlinear relaionship (hird-order) a high and low levels of growh opporuniies is negaive and a medium levels is posiive, negaive relaionship a low levels is much greaer high levels of growh opporuniies. THEORETICAL LITERATURE OF RESEARCH Hierarchical heory of financing models for he firs ime was presened by Myers as follows.. Firms prefer inernal sources of financing. 2. If exernal sources of financing are required, firms will publish he safes securiies. Accordingly, he companies for financing respecively use following cases:. Deb, 2. Hybrid securiies such as converible bonds, 3. Shares (As a las resor). According o he hierarchy reained earnings is he mos effecive mehod for financing a company. Because, only cos which companies because i incurs is paying Dividend, which may cause he sock price is lower. However, dividend is no he only deerminan of sock prices. Ofen, however, for he rapid growh of companies, reained earnings as radable securiies only can provide a small fracion of he capial required. Companies in financing hrough long-erm, shor-erm debs or sock publicaion, and he amoun of hem are free. There are various ypes of long-erm and shor-erm deb such as bank loans, converible bonds, commercial paper and commercial credi. There are also wo main ypes of sock: common sock and preferred sock. Companies o selec he righ mix of financing mehods assess he coss and benefis, risks and reurns of differen ypes of financial insrumens, and hen using heir experiences and commercial and invesmen banks advice, selec he bes of hem. I is no possible o say which one is he absolue bes, because each of hem has heir unique advanages and disadvanages which are appeared in he differen mehods, differen places and differen imes. However, we can say ha, reained earnings in erms of he cos of publishing, is he cheapes mehod of financing, afer ha he following cases respecively are arisen: Benefi of rade cred shor-erm cred bank loans, personal publishing bonds, converible bonds and sock, and finally, public publishing bonds, converible bonds and sock (AaeiZadeh, 204). Copyrigh 204 Cenre for Info Bio Technology (CIBTech) 537

3 Indian Journal of Fundamenal and Applied Life Sciences ISSN: (Online) An Open Access, Online Inernaional Journal Available a hp://hp:// 204 Vol. 4 (S) April-June, pp /Darabi e al. Research Aricle THE HYPOTHESIS OF THE RESEARCH There is significan relaionship beween he company's growh opporuniies and changes raio in reained earnings of companies. METHODOLOGY Research Mehodology in erms of naure, purpose and mehod for doing research Presen sudy in erms of naure and conen is Correlaion sudy, and in erms of ype of work is a research sudy and in erms of purpose in a applicable sudy, and as well as in erms of he mehod for doing research is in he framework of deducive-inducive reasoning. Daa collecion ools To sudy heoreical foundaions and lieraure review, he library mehod wih using books and papers and heses have been used, and informaion needed is exraced from financial saemens of lised companies on he Sock Exchange. Variables of research Independen Variable Opporuniies for growh: he raio of marke value o book value (Cheng e al, 2009) The value of sock marke M/B = Book value of oal asses Dependen variables The raio of changes in reained earnings (GRE ): This formula is derived from he research of Graham and Harvey (200): GRE = reained earnings a end of year - reained earnings a end of year (-) Book value of oal asses Conrol Variables Tangible Asses Raio: The ne raio of propery and machines and equipmen over book value of asses (Pasor and verones 2003) Ne propery of machines and equipmen Tang = Book value of oal asses Invesmen Policy: According o he following formula is obained: (Wu and e al, 2005). Capial expendiure INV = Book value of oal asses Dividend: I is dummy variable ha if he company has paid a cash dividend, i is equal o, and oherwise equal o zero. (Baker and Wurgler, 2002) The raio of cash asses: Cash asses divided by book value of oal asses is calculaed by he following formula (Sein, 996). Cash asses CashHolding = Book value of oal asses Sales growh rae of company (SG ): This formula is derived from he research of Cooney e al (993): S SG = - S I,- S - SG : Sales growh of firm i in year S : Ne sales of firm i in year S - : Ne sales of firm i in year - Copyrigh 204 Cenre for Info Bio Technology (CIBTech) 538

4 Indian Journal of Fundamenal and Applied Life Sciences ISSN: (Online) An Open Access, Online Inernaional Journal Available a hp://hp:// 204 Vol. 4 (S) April-June, pp /Darabi e al. Research Aricle The populaion The populaion of he sudy is all lised companies in Tehran Sock Exchange during he period of , of he 520 companies lised in Tehran Sock Exchange, which mee all of he following crieria: - To March 2006 are lised, and heir names unil he end of March 202 from he lis of lised companies are no removed. 2 - During he desired period, heir shares are raded acively on an exchange. 3 - Their financial period mus be ended 29 March, and in he course of he sudy, he financial erms have no changed. 4 They are no among financial inermediaion companies (invesmen, holding, leasing, and banking and insurance) because of heir differen performances. 5 - The informaion you need is available. In his sudy, 0 companies as sample are seleced Daa analysis mehod In his sudy, o evaluae and deermine he appropriae model, panel daa mehod of Chow es using, Hausman es is used and o es he significance of he model, he F saisic and for significance of he coefficiens, T-saisics and for normalizing variables, Kolmogorov-Smirnov es is used and sofware Spss 20, Eviews7 and Miniab6 are used for analysis. DESCRIPTIVE STATISTICS FOR RESEARCH VARIABLES Mean is he mos imporan cenral index, and shows mean daa so ha, if he daa are aligned on an axis on a regular basis, he mean value is precisely he balance poin or cener of disribuion. Sandard deviaion is a disribuion parameer, and shows scaering of daa. Skewness is deermining parameer of deviaions from symmery and is symmery index of daa. Summary descripive saisics of he variables modeled afer he screening and removal of ouliers using sofware Spss20 are presened in able. Table. Descripive saisics of variables of Research The The ElongaionSkewness maximum Minimum amoun amoun Sandard deviaion Average Number of observai ons Variable The raio of changes in reained earnings Growh opporuniies Tangible asses raio Invesmen policy Dividend The raio of cash asses Rae of sales growh According o able, he average raio of changes in reained earnings of sample companies has been , and minimum and maximum values, respecively, has been and Evaluaion of skewness and elongaion of his variable, which should be 0 and 3, o variable has normal disribuion indicaes ha his variable does no has normal disribuion. Based on he descripive saisics presened in able, he average variable of growh opporuniies sample companies during he posiive period, Copyrigh 204 Cenre for Info Bio Technology (CIBTech) 539

5 Indian Journal of Fundamenal and Applied Life Sciences ISSN: (Online) An Open Access, Online Inernaional Journal Available a hp://hp:// 204 Vol. 4 (S) April-June, pp /Darabi e al. Research Aricle respecively are.0068,. The posiive mean he raio of Tangible asses, invesmen policy, dividend, raio of cash asses and he growh rae of sales respecively are 0.889, , , and TEST FOR NORMAL DISTRIBUTION OF THE DEPENDENT VARIABLE OF RESERCH In his sudy, his issue hrough Kolmogorov-Smirnov (KS) is invesigaed. H and null hypohesis in his es is as follows: H0 : Normal Disrbuon H : No Normal Disribuion If he level of significance of he es saisic is more han 0.05 (Prob> 0.05), H0 hypohesis based on normal variable disribuion will be acceped. In able 2, he K-S Saisics resuls for facors of he changes in reained earnings raio of companies in he sample are provided. Table 2.he resuls of normaliy es of dependen variable of research Significance level ( Sig ) Saisics ( KS ) Number (N) Variable The raio of changes in reained earnings Given ha, for a variables of raio of changes in reained earnings, significance level of K-S Saisics is less han 0.05, herefore, H 0 hypohesis based on normal variable disribuion is rejeced a he 95% confidence level, indicaing ha he variables of he raio of changes in reained earnings don' normal disribuion. Being normal of dependen variable is necessary condiion for regression models, so i is necessary ha before hypohesis es, his variable is normalized. In his sudy, for normalizing daa, Johnson's Transformaion funcion is used, and i is analyzed by sofware Miniab6. The resuls of he K- S es, afer normalizing he daa, are provided in able 3. Table 3, he resuls of normaliy es of Dependen variables afer normalizaion process Significance level ( Sig ) Saisics ( KS ) Number (N) Variable The raio of changes in reained earnings According o able 3, since afer normalizing daa, significance level (Sig) of saisic Kolmogorov - Smirnov for he dependen variable is greaer han 0.05 (0.82), hus he hypohesis a 95% confidence level is confirmed and indicaes ha he variables of raio of changes in reained earnings, afer normalizaion process, have normal disribuion. THE INVESTIGATION OF CORRELATION VARIABLES In his secion, using Pearson's correlaion coefficien, he relaionship beween variables of research and he correlaion beween hem is examined. Marix of correlaion coefficiens beween variables is presened in able 4. The raio of changes in reained earnings also has significan and posiive correlaion wih raio of Profiabiliy index and dividend and has significan and negaive correlaion wih he invesmen policy. Growh opporuniies have significan and posiive correlaion wih raio of Profiabiliy index and he raio of angible asses. The raio of Profiabiliy index also has significan and negaive correlaion wih invesmen policy and he raio of cash asses. Tangible asses raio also has significan and negaive correlaion wih invesmen policy, and he raio of cash asses and he invesmen policy also has significan and posiive correlaion wih he raio of cash asses. Copyrigh 204 Cenre for Info Bio Technology (CIBTech) 540

6 Indian Journal of Fundamenal and Applied Life Sciences ISSN: (Online) An Open Access, Online Inernaional Journal Available a hp://hp:// 204 Vol. 4 (S) April-June, pp /Darabi e al. Research Aricle Table 4. The marix of Pearson correlaion coefficie ns beween variables The raio of Growh Tangible opporuniies asses Rae of The raio o Invesmen sales Dividend cash asses policy growh (0.525) (0.063) (0.920) (0.463) (0.000) (0.290) (0.00) (0.94) (0.000) (0.952) (0.027) (0.2) (0.988) (0.090) (0.64) The raio of changes in reained earnings (0.54) (0.924) (0.000)) (0.000) (0.26) (0.4) The raio of changes in reained earnings Growh opporuniies The raio of Tangible asses Invesmen policy Dividend The raio of cash asses The raio of sales growh RESEARCH FINDINGS The purpose of he hypohesis is o invesigae he relaionship beween firm growh opporuniies, and changes raio in reained earnings, and is saisical hypohesis is saed as follows: H 0 : There is no significan relaionship beween he company's growh opporuniies and changes raio in reained earnings of companies. H : There is significan relaionship beween he company's growh opporuniies and changes raio in reained earnings of companies. This hypohesis using he model () is esimaed as panel daa and if he coefficien is significan a he 95% confidence level, i will be confirmed. GREi, 0 M / Bi, 4Tangi, 5Invi, 6DivPayer 7CashHolding 8SGi, H 0 = β = 0 () H = β 0 The resuls of he Chow ess (o deermine he use of panel daa or hybrid daa) and Hausman (o deermine he use of fixed or random effecs mehod in he mehod of panel daa) for model () are presened in able 5. Table5. Resuls of Chow and Hausman es for model () Tes Saisics Saisics amoun Degrees of freedom P-Value Chow F.6054 (00/499) Hausman Copyrigh 204 Cenre for Info Bio Technology (CIBTech) 54

7 Indian Journal of Fundamenal and Applied Life Sciences ISSN: (Online) An Open Access, Online Inernaional Journal Available a hp://hp:// 204 Vol. 4 (S) April-June, pp /Darabi e al. Research Aricle According o he resuls of he Chow es and is P-Value (0.0087), H 0 hypohesis is rejeced a he 95% confidence level, indicaing ha his mehod can be used for panel daa. Also according o he resuls of he Hausman es and he P-Value (0.0495), which is less han 0.05, H 0 hypohesis is rejeced a he 95% confidence level, and he H hypohesis is acceped, so, i is necessary ha model using fixed effecs mehod be esimaed. In invesigaion of assumpions of he classical regression, resuls of Jarque-Bera es indicae ha he residues arising from he research model esimaion wih a confidence level of 95%, have a normal disribuion, so he probabiliy of he es (0.874) is greaer han Also considering he imporance level of Pagan es which is smaller han 0.05, (0000/0) H 0 hypohesis (abou homogeneiy of variance) is rejeced, and can be said ha model has variance anisoropy problem. To resolve his problem in his sudy generalized leas squares esimaion mehod (GLS) is used. In he self-correlaion es of residuals in he model, which is done using cameras Wason saisic (DW), he saisic Durbin - Wason has been 2.8 and where i is beween.5 and 2.5, we can conclude ha he residuals are independen. In addiion, according o he Ramsey es significance level is greaer han 0.05 (0.32), hen he H 0 hypohesis of his es based on model's lineariy has been confirmed and he model does no have clear error. Summary of he resuls of hese ess are presened in able 6. Table 6. The resuls of ess of he saisical assumpions of he model () Saisics Jarque-Bera Saisics Breusch-Pagan Saisics Durbin-Wason Saisics Ramsey 2 P-Value F P-Value D F P-Value According o he resuls of Chow and Hausman es, and also es resuls of he saisicalassumpions of he classical regression, model () of research using panel daa mehod and as fixed effecs is esimaed. The resuls are presened in able 7. Table 7. The resuls of hypohesis esing using fixed effecsmehod The dependen variable: he Changes raio in reained earnings Number of views: 606 firm -years Variable Coefficien Saisics P-Value Relaion Fixed componen Meaningless Growh opporuniies Negaive Tangible asses raio Meaningless Invesmen policy Negaive Dividend Posiive Cash asses raio Meaningless Rae of sales growh Meaningless The coefficien of deerminaion model Saisics F (P-value) The model is esimaed using Eviews7 sofware as follows: GRE.8955 (0.0000) M / B 0.023Tang Invi, DivPayer CashHolding SG In he Significan es of whole model, given ha he probabiliy of F-saisic is smaller han 0.05 (0.0000), wih 95% confidence level, significance of he model is confirmed. Deermining facor model Copyrigh 204 Cenre for Info Bio Technology (CIBTech) 542

8 Indian Journal of Fundamenal and Applied Life Sciences ISSN: (Online) An Open Access, Online Inernaional Journal Available a hp://hp:// 204 Vol. 4 (S) April-June, pp /Darabi e al. Research Aricle also indicaes ha he percen raio changes in reained earnings by he variables enered in he model is explained. In he Significan es of coefficiens given resuls presened in figure able, since he probabiliy of -saisic for variable coefficien of growh opporuniies is smaller han 0.05 (0.0038), herefore exisence of significan relaionship beween growh opporuniies and he raio of changes in Reained Earnings a 95 confidence level, is confirmed. Thus, he fourh research hypohesis is acceped, and we can say wih 95% confidence ha, beween growh opporuniies and changes raion in reained earnings, here is a significan relaionship. Being negaive coefficien of his variable (-.0006), implies he exisence of an inverse relaionship beween growh opporuniies and changes raio in reained earnings such ha, wih an increase of uni growh opporuniies, changes raio in reained earnings.0006 uni decreases. Thus, according o he analysis made in connecion wih he fourh research hypohesis confirmaion, i can be concluded ha beween he company's growh opporuniies and changes raio in reained earnings of companies, here is an inverse relaionship. CONCLUSIONS The aim of presen sudy is o examine he relaionship beween firms' growh opporuniies and changes raio in reained earnings of lised companies in Tehran Sock Exchange. The populaion of his research is 0 companies lised in Tehran Sock Exchange, which have condiions discussed in he populaion secion. The scope of his sudy is ime period 2007 o 202. For daa collecion, he library mehod, as well as o exrac saisical daa, he audied financial saemens of lised companies in Tehran Sock Exchange, and for analysis of daa, panel daa mehod is used. Also, he growh opporuniies of he companies as an independen variable, and he changes raio in reained earnings as he dependen variable, and he raio of angible asses, invesmen policy, dividend, he raio of cash asses, sales growh rae of company as conrol variables is used. Thus, according o he analysis made in connecion wih he hypohesis confirmaion of research, we concluded ha beween company's growh opporuniies and changes raio in reained earnings of companies, here is an inverse and significan relaionship. REFERENCES AaeiZadeh R and Darabi R (204).The invesigaion of relaionship beween firm growh opporuniies and changes raio in deb of lised companies in Tehran Sock Exchange ", h Conference on Accouning and Managemen, Islamic Azad Universiy, Naanz,,Iran AaeiZadeh R and Darabi R (204). The relaionship beween profiabiliy index and he raio of changes of Reained Earnings in lised companies in Tehran Sock Exchange", cerificaion of he second conference on Accouning, Financial Managemen and Invesmen, Golesan,Iran Baker M andwurgler J (2002).Marke iming and capial srucure. Journal of Finance57, 32. Chang X and DasgupaS(2009). Targe behavior and financing: how conclusive is heevidence? Journal of Finance 64, Cooney J and Kalay A (993).Posiive informaion from equiy issue announcemens. Journal of Financial Economics 33, Graham J and Harvey C (200).The heory and pracice of corporae finance: evidence from he field. Journal of Financial Economics 60, Nissim D and Penman S (2003). Financial Saemen Analysis of Leverage and How I Inform Abou Profiabiliy and Price-o-Book Raios", Review of Accouning Sudies 8. Pp Pasor L and VeronesiP(2003). Sock valuaion and learning abou profiabiliy.journal of Finance 58, Samadi S, Soheyli S and Kabiri Poor V (203). Analysis of he impac of growh opporuniies on financial leverage for firms lised in Tehran Sock Exchange", Volume V, Number One,4-68 Advances in Accouning, Spring and Summer 203. Copyrigh 204 Cenre for Info Bio Technology (CIBTech) 543

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