The effect of financial development on corporate finance using club convergence approach in Tehran stock exchange

The purpose of this study is to investigate the effect of financial development on corporate finance as the convergence determinant. To do so, first we examine convergence between corporate capital structure of firms listed in TSE using the Philips and Sul methodology (2007). The finding shows there are four converging clubs, with a big club consisting of 67% of the firms in sample. Then, we investigate industry-specific and country-specific factors to find the reason of big club convergence. The results indicate that the industry-specific factor is not the cause of convergence. So using unbalanced panel data and the EGLS method, we test the impact of financial development on capital structure in two models. The results show that corporate capital structure is influenced by financial development and this effect does not differ in the two models. Credit market development has a negative significant relationship and stock market development has a positive significant relationship with debt ratio.