The Relationship between Capital Structure and Return on Assets, with an Emphasis on Inflation Caused by Government Decision Makings

Abstract

Decision making about capital structure, i.e. financing of the organizations, like other decision makings of managers, affects the value of the organizations. Therefore, it is one of the most complicated and challenging decision makings of the organizations. In this case study, financial data of 89 listed companies in Tehran Stock Exchange from 2010 - 2015 are analyzed and the relationship between capital structure with annual inflation rate and return on assets rate are studied. The results show that there is a meaningful negative relationship between the rate of return on assets and capital structure (ratio of short term debt to total assets, ratio of long term debt to total assets, ratio of total debt to total assets as independent variables). There is, however, no significant relationship between the capital structure (ratio of short term debt to total assets, ratio long term debt to total assets, ratio of total debt to total assets) and annual inflation rate

Keywords

• Capital Structure
• Rate of Return
• Inflation