Dynamics of Diversification, Capital Structure and Profitability

This study investigates the dynamic relationship among diversification, capital structure and profitability of firms listed in Tehran Stock Exchange. The research sample selected using systematic elimination method, consists of 140 firms listed in TSE from 2011 to 2017. The hypotheses are analyzed using the panel VAR approach. Impulse response functions illustrate significant dynamic interrelationships in the financial sector. The results indicate that any coincident increase in finance diversification and capital structure of a firm optimizes a its profitability, and any increase in profitability results in increase of diver sification and capital structure. With increasing diversification, profitability will increase and capital structure will decrease. Further, if capital structure increases, the profitability will increase and diversification will decrease in firms listed in Tehran Stock Exchange.