A Pattern for Financial Constraint in Iranian Firms

Document Type : Research Paper


1 Ph.D. Candidate in Accounting, Tabriz Branch, Islamic Azad University, Tabriz, Iran

2 Associate Professor of Accounting , Tabriz Branch of Islamic Azad University Department of Management Economic and Accounting , Tabriz - Iran

3 Assistant Professor of Accounting , Tabriz Branch of Islamic Azad University Department of Management Economic and Accounting , Tabriz - Iran


The Main aim of this study is to present a pattern to recognize the financial constraints and to rank the listed companies in Tehran stock exchange from the viewpoint of their financial constraints. To do so, studying the thematic literature and previous studies, 19 variables have been chosen to present the pattern. Then, the final pattern of financial constraints is presented based on operational cash flow using multi-variable regression tool with tabloid data. The statistical population of this study includes 171 firms during the time period of 2007-2017. At last, the final pattern of the study was presented with the abbreviated title of (BNPO) and incorporating 9 variables including: ROA, size of the firm, firm value, cash ratio, sales growth ratio, working capital ratio, operational profit ratio, sales ratio, and debt expense ratio were determined with a clarity rate of 46 percent.


Main Subjects

Abbasi, E., & Sharifi, M. (2014). The Effect of Mispricing on Investment and Capital Structure of Financial Constraints Firms. Financial Research Journal, 16(2), 289-308. (in Persian)
Almeida, H., Campello, M. & Weisbach, M. S. (2004). The Cash Flow Sensitivity of Cash. The Journal of Finance, 59(4), 1777-1804.
Altman, E. (1983). Corporate Financial Distress. John Wiley & Sons, New York.
Altman, E. (2000). Predicting Financial distress of companies: Revisiting the z-score and Zeta Models. New york University, pp.2-54.
Bond, S., Van Reenen, J. (2007) Microeconometric models of investment and employment. In: Heckman, James J. and Leamer, Edward E., (eds.) Handbook of Econometrics. Handbooks in Economics, 6A. North Holland, London, UK, pp. 4417-4498. ISBN 0444506314.
Banos-Caballero, S., García-Teruel, P. &  Martínez-Solano, P , (2014) Working capital management, corporate performance, and financial constraints. Journal of Business Research, 67(3), 332-338.
Campello, M., & Chen, L. (2010). Are financial constraints priced? Evidence from firm fundamentals and stock returns. Journal of Money, Credit and Banking, 42(6), 1185-1198.
Cleary, S. (1999). The Relationship between Firm Investment and Financial Status. Journal of Finance, 54(2), 673-692.
Cleary, S. (2006). International corporate investment and the relationships between financial constraint measures. Journal of Banking & Finance, 30(5), 1559-1580.
Davallou, M. & Mahmoodi, M. (2017). Working capital management, corporate performance, and financial constraints. A Quarerly Journal of Empirical Reasearch of Financial Accounting,3(4), 107-130. (in Persian)
Ebrahimi Kordlar, A. & Mohamad Abadi, M. & Hesar Zadeh, R. (2009). Conflict of Interests between Stockholders and Bondholders, Income Distribution and Financial Constraints. Quarterly Journal of Securities Exchange, 4(1), 53-74. (in Persian)
Fazzari, S., Hubbard, R. G., & Petersen, B. C. (1988). Financing Constraints and Corporate Investment. Brookings Papers onEconomic Activity, 19(1), 141-206.
Frank, M. Z., Goyal, V.K. (2003). Testing the Pecking Order Theory of Capital Structure. Journal of Financial Economics, 67(2), 217-248.
George, R., Kabir, R., & Jing, Q. (2008). Investment – Cash Flow Sensitivity and Financing Constraints: An Analysis of Indian Business Group Firms. Journal of Multinational Financial Management, 21(2), 69-88.
Guariglia, A., & Mateut, S. (2010). Inventory investment, global engagement ,and financial constraints in the UK: Evidence from micro data. Journal of Macroeconomics, 32(1), 239-250.
Hadlock, Ch.J., & Pierce, J.R. (2010). New evidence on measuring financial constraints: moving beyond the KZ index. The Review of Financial Studies, 23 (5), 1910-1940.
Hahn, J., & Hangyong, L. (2009). Financial Constraints, Debt Capacity, and the Cross-section of stock returns. The Journal of Finance, 64 (2), 891-921.
Hashemi, S., Amiri, H. & Moshtaghian, M. (2015). The Impact of Operating Cash Flows on External Financing, Considering the Firm Financial Constraint and Inflation. Journal of Financial Accounting Research, 7(4),19-38. (in Persian)
Hovakimian, G. (2011). Financial constraints and investment efficiency: Internal capital allocation across the business cycle. Journal of Financial Intermediation, 20 (2), 264-283.
Kalatzis, A.E.G., Pellicani, A. & Moccellin, J.V. (2010). The impact of corporate governance on financial constraint: evidence from Brazilian firms. International Conference on Applied Economics (ICOAE), 389-395.
Kanani Amiri, M. (2008). Finacial Constraints and Stock Return in Capital Market. Daneshvar Raftar, 14 (26), 17-30. (in Persian)
Kaplan, S.N., & Zingales, L. (1997). Do financing constraints explain why investment is correlated with cash flow? Quarterly Journal of Economics, 112 (1), 169-215.
Karimi, F. & Sadeghi, M. (2010). Internal and external financial constraints and its relationship with investment of capital assets. Quarterly Financial Accounting, 1(4), 43-58. (in Persian)
Kelly Nichols, B. (2008). Excess cash, financial constraints, and the diversification discount. PhD Dissertation, Missouri Southern State University.
Khani, A. & Afshari, H. (2012). Financing anomalies and investing anomalies in Tehran Stock Exchange. Financial Research Journal,14(2),31-46. (in Persian)
Klepsch, C., & Elsas, R. (2016). A new measure of financial constraints applicable to private and public firms. Available in: https://www.researchgate.net/ publication /282355758.
Kordestani, G. & Tatli, R., Kosari Far, H. (2014). The Evaluate ability of Altman adjusted Model to Prediction Stages of Financial Distress Newton and Bankruptcy. Quarterly Journal of Investment Knowledge, 3 (9), 83-100.
(in Persian)
Kudrimoti, S. (2008). Two essays on financial condition of firms. Graduate Thesis. University of South Florida
 Lamont, O., Polk, C., Saa-Reguejo, J., (2001). Financial constraints and stock returns. Review of Financial Studies, 14(4), 524-554.
Li, D. (2010). Financial Constraints, R&D Investment, and Stock Returns. PhD Dissertation. University of California San Diego.
Mahdavi, G., Rezaei, G. (2015). Examining the relationship between board structures and financing constraints for the companies listed on Tehran Stock Exchange. Financial Research Journal, 17 (1), 179-198. (in Persian)
Moyen, N. (2004). Investment–Cash Flow Sensitivities: Constrained Versus Unconstrained Firms. The Journal of finance, 59(5), 2061-2092.
Musso, P., & Schiavo, S. (2008). The impact of financial constraints on firm survival and growth. Journal of Evolutionary Economics, 18(2), 135-149
Panahi, H. & Asadzadeh, A. & Jalili Marand, A. (2014). A Five-Year-Ahead Bankruptcy Prediction: the Case of Tehran Stock Exchange. Financial Research Journal, 16(1), 57-76. (in Persian)
Perotti, E., Vesnaver, L. (2004). Enterprise finance and investment in listed Hungarian firms. Journal of Comparative Economics, 32(1), 73-87.
Tehrani, R. & Hesar Zadeh, R. (2009). The effect of free cash flows and Financial Constraints on financing over investment and low investment. Quarterly journal of accounting and auditing, 1(3), 50-67. (in Persian)
Whited, T. M. (1992). Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data. The Journal of Finance, 47(4), 1425-1460.
Whited, T. M., & Wu. G). 2006(. Financial Constraints Risk. Review of Financial Studies, 19(2), 531-559.