The Effect of Financial Distress on the Investment Behavior of Companies Listed on Tehran Stock Exchange

Document Type: Research Paper


1 Islamic Azad University Science and Research Branch of Tehran

2 Islamic Azad University, Science and Research Branch of Tehran, Tehran, Iran


The purpose of this study was to determine the effect of financial distress on investment behavior for the years of 2011 to 2016. The statistical population of the research is Tehran Stock Exchange. According to the systematic elimination method, 104 companies have been selected as the statistical sample. In this
research, financial distress is independent variable and corporate investment
behavior is dependent variable and investment opportunities is considered as interactive variable. The present research is an applied research and in terms of methodology is a correlational study. In this research, for collecting data and information, library method and in the research data section, financial statements, explanatory notes and monthly magazine of stock exchange, and in order to describe and print the data collected, descriptive and inferential statistics and to analyze the data, pre-test variance analysis, F-limmer test, Hausman test and Jarck-Bera test, and then multivariate regression test for confirmation and rejection of research hypotheses (EViews software) were used. The results showed that firms with less investment opportunities tend to be less likely to invest, in addition distressed financially firms with more investment opportunities are more likely to increase investment.


Main Subjects

[1] Abbasi, Abraham, Ebrahimzadeh, Behrooz , Factors Affecting Investment Level in Tehran Stock Exchange Companies, Economic Modeling Quarterly, Third Year,2009, 4(1),P.57-68.

[2] Ahmadpour, Ahmad, Shahsavari, Masoumeh , Review of how to exercise the powers of managers in different phases of financial distress in companies accepted in Tehran Stock Exchange, Journal of Accounting Knowledge,2014, 17 (2), P. 57-74.

[3] Baghfi, Ali, Bolo, Ghasem, Mohammadian, Mohammad , Accounting Information Quality, Excessive Investment and Free Cash Flow, Journal of Accounting Progress, Shiraz University,2011, 13 (10), P.111-130.

[4] Bhagat, S,Moyen, N, Suh, I, Investment and internal fundsof distressed firms. J, Corp. Finance2005, 11 (3),P. 449-472.

[5] Cleary, S, The relationship between firm investment and financial status. Journal of Finance,1999, 5(4), P.673-692.

[6] Davydenko, S.A., Franks, J.R, Do bankruptcy codes matter? A study of defaults in France, Germany, and the UK. Journal of Finance,2008, 4(3), P.348-360.

[7] Fallahpour, Saeed, Eram, Asghar, , Prevention of financial distress of companies using ant colony algorithm, Journal of Financial Research, 2016,18(2), P.368-347.

[8] Fazzari, S.M., Hubbard, R.G., Petersen, B.C, Investment-cash flow sensitivities are useful: a comment on Kaplan and Zingales. Q. J. Econ, 2000, 11(5),P. 695-705.

[9] George Thomas,J.,Chuan-Yang,Hwang , A resolution of the distress risk and leverage puzzles in the cross section of stock returns ,Journal of Financial Economics,2010, 9(6),P.56-79.

[10] Hoshi, T., Kashyap, A., Scharfstein, D, Corporate structure, liquidity, and investment: evidence from Japanese industrial groups. Q. J. Econ, 1991,10(6), P.33-60.

[11] John, K, Lang, L.H.P,Netter, J, The voluntary restructuring of large firms in response to performance decline. Journal of Finance,1992, 4(7),P. 891–918.

[12] Jokara, H., Shamsaddinia, K., Daneshi, V., Investigating the Effect of Investors' Behavior and Management on the Stock Returns: Evidence from Iran. Advances in mathematical finance & applications, 2018, 3 (3) P. 41-52.

[13] Kadapakkam, P.R., Kumar, P.C., Riddick, L.A, The impact of cash flows and firm size on investment: the international evidence. J. Bank. Finance,1998, 22 (3), P.293-320.

[14] Kaplan, S.N., Zingales, L, Do investment-cash flow sensitivities provide useful measures of financing constraints? Q. J. Econ,1997, 11(2),P. 169-215.

[15].Karimi, Farzad; Moraleghi, Hasanali, Rezaie Mehr, Fatemeh , Investigating the Effect of Financial Leverage and Opportunity of Company Growth on Investment Decisions in Tehran Stock Exchange's Accepted Companies, Financial Yearbook Scientific-Research Quarterly,2010, 3(7). P.19-29

[16] Kurdestani, Gholamreza, Tatali, Rashid, Kousari Far, Hamid, Evaluation of the predictive power of Altman's modified model from Newton financial distress and corporate bankruptcy, Investment Knowledge Research Quarterly, Third Year,2014, pp485-499.

[17] Li J.,‌Chengqin, S, Zhaohua, W, The Impact of Debt Financing on Firm Investment Behavior: Evidence from China, International Journal of Digital Content Technology & its Applications,2010, 55(6), pp1264-1294

[18] López-Gutiérrez, C., Azofra, S. S., Torre-Olmo, B, Investment decisions of companies in financial distress, Business Research Quarterly,2015, 1(8), 174-187.

[19] Marchica,M,R, Mura, , Financial Flexibility and Investment Decisions: Evidence from Low-Leverage Firms, ssrn.2008.

[20] Mehrani, Sassan, Kamyabi, Yahyaei, Ghayour, Farzad , Effect of capital market cycle on the behavior of financial distress prediction patterns, Faculty of Management and Economics, Shahid Bahonar University of Kerman, Journal of Accounting Knowledge,2017, 8(2),P. 62-35(in Persian).

[21] Mosavi Shiri, M, M. Salehi , Prediction of Financial Distress in Tehran Stock Exchange Using DEA Approach, Indian Journal of Science and Technology,2012, 5(1), P. 3461-3473.

[22] Pindado,‌J, Rodrigues, L, De La Torre, C, How do insolvencycodes affect a firm’s investment?, Int. Rev. Law Econ. 2008,28 (4),P.227-238.

[23] Qian, J., Strahan, P.E, How laws and institutions shape financial contracts: the case of bank loans. J. Finance,2007, 6(2),P. 2803-2834.

[24] Rahimian, Nasooddin; Tavakolnia, Ismail, Financial literacy and its relation to financial distress and growth opportunities in companies accepted in Tehran Stock Exchange, Financial Accounting Quarterly, 2013, 7 (14), P.57-74.

[25] Salehhi, Allah Cream; Elhayi Sahar, Mehdi; Rider, Adiba , Review of Investment Decisions of Financial Distressed Companies, Financial Management Outlook, Financial Management Outlook, 2016, 17(59), P.59-54.

[26] Sung,C,On the interactions of financing and investment decisions,  Managerial Finance.2009, 17(60), P.109-120.

[27] Tykvova, T, Borell, M, Do Private Equity Owners Increase Risk of Financial Distress and Bankruptcy?, Journal of Corporate Finance, 2012, 18(1), P. 138-150.

[28] VIET, A, DAN,G, Leverage, Debt Maturity and FirmInvestment: An Empirical Analysis,Journal of Finance & Accounting ,2011,38(1) P. 225-258.

[29] Wadeiy, Mohammad Hossein, Shokouhizadeh, Mahmoud , Investigating the Financial Criteria Affecting Investors' Decision Making in the Stock Exchange, Journal of Accounting Knowledge, 2012, 6(1),P.65-51

[30] White, M.J. (1996). The cost of corporate bankruptcy: a US-European comparison. In: Bhandari, J., Weiss, L. (Eds.), Corporate Bankruptcy: Economic and Legal Perspectives. Cambridge University Press, New York.

[31] Zaki, E, Bah, R, Rao, A, Assessing probabilities of financial distress of banks in UAE, International Journal of Managerial Finance, 2011,7(3), P. 304-320.