Evaluation of the Effect of Investment on Future Performance Considering the Level of Firm Financial Constraint

The effects of investment on firm performance depends on several factors. One of the most important factors is firm financial constraint. This study aimed to investigate the effect of investment on firms’ future profitability and buy-and-hold market adjusted returns considering the level of firm financial constraint. For statistical analysis in this study, multiple regression models were used. The firm financial constraint was measured using ordered logit regression. This research has been conducted on 120 listed companies in Tehran Stock Exchange based on data mentioned in financial annual reports between2008–2014. Results indicated different effects of investment on future profitability in constraint firms in comparison to non-constraint firms. These findings largely concur with theoretical background. However, no evidence could be found for different effects of investment on future buy-and-hold market adjusted stock return in constraint and non-constraint firms.