Investigating the Relationship between Business Risk and Financial Risk with Performance of Pharmaceutical Companies Listed on Tehran Stock Exchange

Abstract

Introduction: There are different criteria and methods for evaluating the performance of companies one of which is Tobin's Q ratio. The purpose of the current study is to investigate the relationship between Tobin's Q ratio with business and financial risk. Operation leverage and financial leverage were used to calculate the business risk and financial risk, respectively. Method: Statistical sample of the present study consists of all pharmaceutical companies listed on Tehran Stock Exchange. Out of them, ultimately 20 companies which were eligible during 2007-2012 were selected. Also, Panel Data Analysis method was used to test the research hypotheses. Results: The results of this research indicated that there was no significant relationship between Tobin's Q ratio and operation leverage but there was significant and inverse relationship between Tobin's Q ratio with financial leverage of pharmaceutical companies listed on Tehran Stock exchange. Conclusion: Given the findings of the study, it can be concluded that commercial risk has no effect on pharmaceutical companies, while financial risk has negative effect in that as the debt of companies increases, their performance is reduced.

Keywords

• tobin's q ratio
• business risk
• operation leverage
• financial risk
• financial leverage