The Relationship between Tax and Capital Structure in Iran

The capital structure of a firm plays an important role in its investment decision-making and, as result, in its overall performance outcome. The effect of taxes on the capital structure has already been studied by some researchers. The present paper is aimed at studying the relationship between the capital structure and taxes imposed on the Iranian companies listed on Tehran Stock Exchange. A sample of 48 companies whose dataof a thirteen-year period (1995-2007) was available has been selected. Cross-sectional and panel data regressions have been used in order to test the research hypotheses. A distributed-lag model, too, has been used for hypothesis-testing purposes. The signification level of the model has been calculated through T and F statistics. The obtained results show that there are no relationships between capital structures of the companies listed on the TSE and their taxes. The findings resulted from the hypothesistesting through the distributed-lag model have also indicated that thereis not a very significant relationship between capital structures of the companies listed on the TSE and their taxes