Studying the interactions of corporate financial behaviors in Tehran Stock Exchange Under Vector Auto Regression Panel approach

Objective: Although there has been an increasing amount of literature for a more detailed

analysis of the corporate governance environment, they have tried to model its main policies

including three factors of investment, dividend payout and financing, but there are still some

unanswered questions in this regard. Some things like, how is the interaction between different

financial behaviors of the company? And is it possible that, in the face of unstable conditions,

maintaining a financial behavior and consequently a particular policy at its steady state level is

superior to others? The main goal of this research is to provide empirical evidence of the joint

and simultaneous determination of the aforementioned behaviors, while examining the dynamic

interactions of financial behaviors of companies.

Method: This research uses the vector auto regression panel modeling framework, which

prevents the researcher from predetermining the role and relationship of several key behaviors of

the firm. the main variables of the research include: the investment decision of the company (in

the form of the ratio of capital expenditures to total assets), the amount of dividend payout (the

rate of dividend payout was obtained by dividing the amount of cash dividend by the total

assets), decisions to issuance (repurchase) equity (the ratio of issuance(or repurchase) of equity

over total assets), the company s leverage ratio (the company s total debt divided by total assets)

and return on assets (net income divided by total assets).

Results: The unit root showed that all research variables are at a stable level, and the circle

unit root test indicates that the model satisfies the condition of stability. A study conducted on a

selected sample of 118 companies admitted to the Tehran Stock Exchange showed that during

the years 2006 to 2022, all firm s financial behaviors are jointly determined and the companies

have changed the amount of dividend payout payout, debt, investment and finally the shares

issued, respectively, in order to absorb the incoming shocks, which is a confirmation of

Hierarchical theory of financial resources. Also, it seems that the incentive of signaling is weak

among the sample companies and changing the dividend payout is considered the easiest tool to

adjust the costs, maintain the value of the company and make the company more agile. Some of

the results of financial behavior of companies are as follows:

* Investment is largely determined exogenously, and firms adjust investment only slightly,

about 22 percent, to absorb shocks to other financial behaviors. This issue can be due to the

high cost of stopping and starting an investment project.

* There is the least willingness to adjust decisions related to issuing shares to achieve other

financial goals. This issue can be caused by the adverse effects of issuing shares according

to the theory of agency costs. But unlike some studies that introduce dividend payout

payout rates as more sticky than leverage rates (such as Fama and French, 2002), in this

analysis, in order to absorb shocks to other variables, dividend payout changes are

observed more than leverage rates. Therefore, it can be said that dividend payout decisions

are the most endogenous financial decisions in Iran.

* Firms tend to adjust existing shocks by changing dividend payout instead of adjusting other

financial behaviors. However, even this amount of changes indicates that the dividend

payout is not a pure shock absorber. In other words, it may be the first choice, but it is not

the only financial behavior that is always used to absorb incoming shocks.

* Stock issuance (or repurchase) decisions have the highest cost of deviation. Stock issuance

(or repurchase) decisions expose management s inside information to the public, so it is

natural that they do not want to continually signal to the market that their stock is

overvalued by issuing stock. Therefore, companies refuse to use this financial behavior to

absorb shocks to the company.

Conclusion: The results of the research showed that with a shock to any of the financial

behaviors, other financial behaviors also change, which is a confirmation of the joint

determination of the desired financial behaviors of the company. It also seems that the change in

the amount of equity, or the net issuance of shares, according to what is always emphasized in

the hierarchy theory, entails a very high cost for the company so companies avoid its continuous

changes. At the same time, contrary to existing primary studies, the company s dividend payout

payout according to the evidence of the study (Allen and Michele, 2003) does not contain

information about the company s future earnings. In other words, maintaining a stable and

uniform distribution of profits has the lowest priority among financial behaviors, which shows

that there are no concerns about the motivation of signaling among the companies sampled in

this research.

Also, due to the concentration of ownership of companies or the close relationship with

borrowers in bank-oriented countries similar to Iran, the level of motivation for signaling is low.

Based on this, one of the future proposals of this study is to examine the interaction of financial

behaviors of companies by considering the decision-making space of companies by introducing

frictions such as various uncertainties, the diversity of institutional levels of companies and

various financial structures using the approach considered in this research.