Investigating the Relationship between Managerial Ownership, Financial Leverage and Dividend Policy of the Pharmaceutical Companies Listed on the Tehran Stock Exchange via Simultaneous Equations

According to the Agency Theory, an increase in managerial ownership helps to the association of management decision-makings with the shareholder's interests, and limits the opportunistic behaviors of managers. But, the behaviors of managers may also be dependent on the amount of dividends and financial leverage. Therefore, this research aims to investigate the relationship between managerial ownership, financial leverage, and dividend policy of the pharmaceutical companies listed on the Tehran Stock Exchange through simultaneous equations method. The present research is applied with an ex-post facto approach, and it is designed by a quasi-experimental method. In order to reach the purposes of the research, 20 pharmaceutical companies were selected within the duration of 2004-2012 through quasi-experimental method. In this study, in order to test the hypotheses of the research, three-stage least squares of simultaneous equations method, panel data, and Eviews Software Version 7 have been used. Between financial leverage and managerial ownership and as well, between dividend policy and managerial ownership, and also, between dividend policy and financial leverage, a negative mutual relationship exist. The results of the research reveal that there is a mutual negative and significant relationship among managerial ownership, financial leverage, and dividend policy of the companies. Therefore, any increase or decrease in each of them would result in an increase or decrease in the other two variables. In addition, managerial ownership and dividend policy of the companies are considered as the alternative methods for reducing the costs of free cash flows. Furthermore, the results of the current research are consistent with the Agency Theory.