Relationship of Capital Structure Choice, Information Asymmetry, and Debt Capacity in Tehran Stock Exchange Listed Companies

Information asymmetry costs are the most important driver for firms’ financing decisions that our understanding of this issue will lead to identifying the firms’ behavior. Hence, this study seeks to investigate the predictions of pecking order theory among companies listed in the Tehran Stock Exchange. In this research, the sample includes 141 companies listed the Tehran Stock Exchange and is during 1390 – 1394 years that is used for testing hypothesis. Evidence show that listed companies do not follow the pecking order theory, and small firms compared to large firms, use more stock issuance for financing. In addition, performing of pecking order theory among firms without debt capacity concerns is better. In addition, results show that explanatory power of pecking order theory is more than trade-off theory, but it is not remarkable. Overall, result shows that hat the pecking order theory fails to explain sample firms’ financing choices.