Developing a model for measuring investment thirst using agency costs in companies listed in Tehran Stock Exchange

Abstract

Profitable investment is the cornerstone of corporate life and is a fundamental factor in determining its value. Managers of companies can maximize returns by knowing the factors affecting investment and by employing them to reach the optimal level of investment. Among these are investment thirst issues, which were first proposed by Deng et al (2017) is presented using the concept of soft budget constraints. The purpose of this paper is to develop the model of Deng et al (2017)by examining the relationship between the agency cost of representation and Investment- cash flow sensitivity with the investment thirst, with respect to controlling financial constraints. This paper examines the financial information of 161 companies listed in the Tehran Stock Exchange during the period from 2009 to 2019. The results of the research indicate that the Investment- cash flow sensitivity to different classes of companies with financial constraints and without financial constraints has a significant positive relationship with investment thirst, and the Investment- cash flow sensitivity can explain investment thirst. In this research, agency costs are measured using performance ratios. The results indicate that there is no significant relationship between agency costs and investment thirst in the SA index, but there is a significant negative relationship between agency costs and investment thirst in the WW index.

Keywords

• soft budget constraints
• investment thirst
• agency costs
• financial constraints
• investment- cash flow sensitivity