Relationship between Cash Flow Management and Cost of Debt In Companies Listed in Tehran Stock Exchange

Abstract

This study examines the relationship between cash flows management and cost of debt. Operating cash flow is divided into two categories as managed and unmanaged cash flows. Statistical group of companies in this study is the manufacturing companies listed in Tehran Stock Exchange (TSE) during the years 2004 to 2009. The research sample includes 78 companies (390 company/year). This study takes descriptive correlation analysis and tests hypotheses, using multiple linear regression and Ordinary Least Squares (OLS) method. The results showed that there was a negative significant relationship between the unmanaged operating cash flow and cost of debt. And there is a positive significant relationship between managed cash flow (abnormal) and cost of debt .The bigger (negative) correlation of unmanaged operating cash flow and cost of debt with respect to the (positive) correlation between managed operating cash flow and cost of debt indicated by the regression coefficient showed low ability of managers in managing and manipulating the cash flow. Also, the adjusted R-squared with 18% value, indicated that the predictors may explain 87.4% of the variance of the dependent variable. Durbin-Watson statistic also showed lack of correlation between the research variables.

Keywords

• keywords: operation cash flow
• unmanaged cash flow
• managed cash flow
• cost of debt