The Impact of Financing Method on Profitability Growth among Iranian Firms

This paper attempts to study the effect of financing method and growth of firms'' profit while it also identifies the influencing factors on firms’ external financing needs. To do so، a sample including 30 large firms active in Tehran Stock Exchange has been considered during 2001 – 2011. The data set is extracted from each firm''s financial statements. Using Panel Data approach we find that comparing to other factors، short-term financing is more important to achieve higher growth rates. Profit sharing model among firms is considered to be one of the reasons for lower growth rate of firms in Iran. In this regard، the results imply a positive relationship between rise in firm''s incomes and profitability. Moreover، an increase in long-term liabilities implies long-term financing needs to pay back the firms’ long-term debts in order to reach a sustainable growth rate. Investment and dividends also do not have an effect on firms'' long-term financing need to support their continuous growth.