What Factors Influence the Differential Behavior of Value and Growth Firms? Evidence from the Tehran Stock Exchange

Document Type : Research Paper


1 Assistant Prof., Department of Financial Management, Faculty of Management and Social Sciences, Islamic Azad University of North Tehran Branch, Tehran, Iran.

2 Prof., Department of Finance and Ralph Marotta Chair in Free Enterprise, Quinlan School of Business, Loyola University Chicago, Chicago, USA.

3 Associate Prof., Department of Financial Management, Faculty of Management, Islamic Azad University of Central Tehran Branch, Tehran, Iran.

4 Associate Prof., Department of Financial Management, Faculty of Management and Social Sciences, Islamic Azad University of North Tehran Branch, Tehran, Iran.


Objective: While recent studies (Petkova and Zhang (2005) and Choi (2013)) provide evidence using U.S. data for the differential behavior of the value and growth firms, they do not explain the sources and causes underlying such differences. Further, it is unclear whether such differences still persist in other countries’ capital markets. In this paper, we address both of these questions by examining the dynamic behavior of value and growth firms’ conditional asset and levered betas over multiple periods of stable and adverse market conditions for the period 2000 -2017 in the Tehran Stock Exchange (TSE).
Methods: Panel regressions and parametric tests are conducted for sub samples of strong value and growth firms to examine the influence of key financial and market variables such as leverage, return on assets, sales growth, market to book, and market sentiments.
Results: During adverse market conditions, value firms’ asset betas are negatively affected by financial leverage and positively by operating leverage measures. On the other hand, growth firms’ asset betas are only positively affected by their profitability. These results support the notion that high financial and operating leverage plays a key role in elevating value firm’s riskiness during adverse economic conditions.
Conclusion: We provide evidence that value and growth firms’ levered and unlevered risks are differentially effected by market and financial factors. Specifically, we find that operating and financial leverage significantly constraint value firms’ ability to respond effectively during adverse economic conditions.


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