The Role of Inappropriate Pricing on Investment Costs and Capital Structure in Profit Smoothing and Non-smoothing Firms

Document Type : Original Article

Authors

1 Associate Prifessor of Financial Management, Islamic Azad Unversity, Yazd Branch, Yazd, Iran

2 PhD Student of Financial engineering, Islamic Azad Unversity, Qom Branch, Qom, Iran

Abstract

Inappropriate stock pricing influences the investment decisions and since the capital market value is a driving force of the firms’ investment, then it can be effective on standard deviation of market value of the firms natural value to the ambiguity ad random errors of the relationship between market evaluation and firms’ level of investment. Therefore, the main goal of this research is to investigate the role of inappropriate pricing on investment costs and capital structure in profit smoothing and non-smoothing firms. The research methodology is based on information obtained from the transactions conducted in research era during 2011-2015 provided by stock exchange organization. The sample included 132 firms which were selected using the Cochran’s formula in random sampling and in order to test the hypotheses, linear regression and correlation to analyze the data in Eviews. The results obtained indicated that there is direct relationship between inappropriate pricing and investment costs. In addition, there is inverse relationship between inappropriate pricing and capital structure. The results implied that inappropriate pricing effect on investment costs and capital structure of the firms with profit smoothing more than that in profit non-smoothing firms. The results of this research are consistent with literatures, theoretical framework and documentations provided.

Keywords

Accounting and Auditing Research
Volume 12, Issue 47
October 2020
Pages 37-54

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