The Relation between Financial Flexibility and Financing Type of Firms Listed in Tehran Stock Exchange (TSE)

One of the major challenges facing firms is obtaining funds needed to finance current operations and investment. Financing of firms is influenced by different many internal and external factors. On the other hand, several studies have shown that due to the problems of the traditional theory of capital structure, financial flexibility is one of the main factors effective on financing of firms. This study examines the relation between financial flexibility and finance type (debt or equity). For this purpose, 108 firms listed in Tehran Stock Exchange from 2003 to 2013 are studied. In this study, the marginal value of cash which is an indicator of financial flexibility is calculated using the model horoscope Faulkender and Wang (2006) and then the impact of financial flexibility on financing through stock or debt or a combination is investigated using simple and multiple logistic regression. The results show that financial flexibility has a significant and positive relationship with firm's transitory debt issuance, but it has no significant relation with equity issuance. In this study, transitory debt means the debt over the estimated optimal leverage