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ISSN: 1298-0595
Vol.27; No. 4 (2015)
Analysis of Efficacy of Cash Flows, Capital Expenditure, and
Value of Shares Issued from Technology Coefficient in
Companies Listed in the Stock Exchange of Tehran
Mehdi Sadeghi1 , Farahdokht Ebadi2*
1
Department of accounting ,College of humanities , Zahedan branch, Islamic Azad university,
Zahedan, Iran
2
Assistant Professor, Department of accounting ,College of humanities , Zahedan branch,
Islamic Azad university, Zahedan, Iran
*Corresponding Author:[email protected]
ABSTRACT
Free cash flows leave great influence on opportunity- seeking behavior of
managers. In caes where the company owns a large amount of free cash flow,
the manager can invest the surplus funds in different opportunities. Probably,
due to the limited,reliable, and efficient investment opportunities, and rapid
technological progress, the managers will nvested on cases which either have
much less yield than the capital cost of the company, or are rather risky. The
purpose of this study was to evaluate the effect of cash flows, capital
expenditure and value of shares issued from the Technology coefficient in the
companies listed in the Stock Exchange of Tehran. This library study is
analytical- causative and is based analysis of the panel data. In this study, the
financial data of 107 companies listed in the Tehran Stock Exchange from 2008
to 2013 were reviewed (642 firms/year).to test the hypotheses and to analyze
the obtained results,Spss 20, Eviews 7, and Minitab 16 software were used. The
results of the study showed that in case of an increase in the companies’
technology coefficient, there is a direct and meaningful relationship between the
companies’ cash flow and capital expenditures. Additionally, the research
suggested that due to an increase in their Technology coeffiecient, the
proportion of the issued shares and the companies’ accumulated cash flows are
directltly and significantly related.
KEY WORDS: Cash flows, capital expenditure, issued shares, Technology
coefficient, data panel
Introduction
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ISSN: 1298-0595
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One of the main objectives of each profit unit is to gain profit through
investment in new technologies and to maximize the wealth of its owners.
Sometimes, in the profit firms or units, the process of gaining profit is
performed after the process of acquiring profit if it goes on according to the
expectations and no unexpected capital expenditures occurs during this period.
In these situations, after deducting all the costs, an amount of money is left as
interest income for the company owners and this would be the most important
goal for which the firm is founded. Normally, owners and shareholders are
expected to receive the full benefit , so they are willing to invest on modern
technoogies with lower cost; however, due to inflation in the country and
regarding the fact that the directors and shareholders of the company always
tend to grow and develop, shares’ distribution among the shareholders in the
form of cash seems logical and lack of cash dividend distribution in the form of
a dividend share (bonus shares) or any other savings of the company would
increase the company's liquidity reserve. In addition, it leads to conducting
developmental plansand projects along with growth of the firms’ operations, so
each expense would be in accordance with the the firm’s income, and
ultimately, it would reduce investment costs through investments in new
technologies and it is one of the demands of shareholders and investors.
Statement of the problem and choice of research topic
Company management has different financial provision sources and uses
various ways to provide necessary funds for investment expenses and its
operation. Financial provision can be perfomed through share or stock issues,
but these are essentially different. Some theories have focusd on the reasons
why companies choose certain financial provision ways and how these choices
are reflected in the past and future performance of the company (Mahdavi
Sabet, Elahe, 2011). Unlike financial leverage, high levels of free cash flow, can
be regarded as incentives for opportunistic behavior of managers (Askar et al.,
2010). In fact, when the company is faced with a large amount of free cash
flow, the rate of opportunistic behavior of managers will increase. Likewise,
gradual increase in financial leverage would decrease the amount of cash flow
available to managers and therefore, it reduce cash consumption (Mars and
Majlov, 1984).
Increased proportion of shares issued to a corporate division of capital into
smaller components is with respect to management policies and topics related to
increased investment also originate from this division which create
opportunities to achieve long-term benefits (Almeida and Kamplv, 2010).
advancement of technology related to production of goods and services need to
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ISSN: 1298-0595
Vol.27; No. 4 (2015)
invest in new systems is also strongly felt (White, 2006). with a staggering
increase of technology, transportation, and the related cash flows and cash
management were also considered by the mangers and implement policies to
achieve long-term goals of the company which is dependent on the adequacy of
these variables (steroids, 2002).
Importance and necessity of research
Investor interest in an institution includes future profits, future cash flows and
future cash interest payments (Rahdes et al., 2005). Being aware of these
benefits is a must for the investors and they should be informed about both the
profit and the future cash flows. In fact, investors seek for earning more profit
and cash flows derived from new technologies and the institution in which they
have invested, so as to receive cash dividends and decide about on his/ her stock
value with respect to the future and other similar investment opportunities
(Falvrkr and Peterson, 2006). To estimate the future cash dividends, they need
information about future profits, because these profits are considered the main
source of information about the company's ability to pay future dividends
(Chrykv and scalar, 2011). Moreover, to judge the value of their share values,
they require information about their future cash flows, because most stock
assessment models are based on the present value of expected future cash flows.
Hence, information about profit and future cash flows are considered as two
investment benefits is stockholding required by the investors. As far as required
information on cash flows is not available, benefit predictions are used as a
proper candidate for the cash flows(Haez , 2002).
The future cash dividend is paid attention since it has been attempted to
contribute the price of the securities to future prifit. Prediction of future cash
dividends has an essential role in using numerous stock assessment models. In
this regard, Elson believes that distribution of the expected dividends could be
considered as a common feature for investment on stocks. He also states that the
value of these share stocks is a function of the expected cash profit which is
modified acciording to the risk (Htun, 1999).
In addition, theoretically, investment incentives would mean that in companies
with modifying operation, the leverage would resuce itself, and on the other
hand, the future growth opportunities would identify themselves on time, and it
would result in decreased debt effect, even if it leads to motivation based on less
investment. It is the manager’s duty to recognize the comning growth
opportunities in advance and reduce the leverage optimaly and dilute its impact
on growth. This leverage contains warnings about investment opportunities, so
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ISSN: 1298-0595
Vol.27; No. 4 (2015)
regarding the significance of the issue, it has been tried in the current paper to
analyze the effects of cash flows, capital expenditure, and the ratio of the issued
shares from the Technology coefficient in the companied listed in the Stock
Exchange of Tehran.
History of Literature
Arab Mazar Yazdi et al (2006) studied the information content of cash flows
and engagement by analyzing the relationship between stock returns and
earnings and its components. Evidence support a great deal of information
content on benefit rather than operating cash flows. The findings confirm
information about the relationship between the discretionary accruals and
nondiscretionary items. Qalibaf and Naderi (2006) referred to different reactions
of people to new information issued by Iran Stock Exchange and the
irrationality of their performance, and they studied the reactions of the investors
toward the information and news issued in the country’s local boom and
recession conditions. They concluded that short- term investors did not express
any ecxessive reaction toward these fluctuations. Moradi and Ahmadi( 2011)
analyzed the effective factors on investment behaviors of companies in
incomplete markets. In this regard, the data of 81 companies listed in the Stock
Exchange of Tehran (2001- 2007) was extracted and using the multiple
regression model, the pattern of capital expenditure was estimated.
The results showed that only the variable operating cash flows had a significant
relationship with the changes of capital expenditure. Tehrani Hesarzade (2011)
studied the effect of free cash flows and financing constraints on investment of
120 companies listed in Tehran Stock Exchange during the period from 2000 to
2006. Their research results showed that the relationship between free cash
flows and high levels of investment was directly and statistically significant.
However, there is no significant relationship between the restrictions in
financing and low levels of investment in the companies listed in Tehran Stock
Exchange. Adlane and Prysyna (2007) showed that in order to improve the
Malaysian stock market liquidity, it is necessary to increase the percentage of
free floating stocks of the companies, because foreign investors are not willing
to inverst in a market where float of its shares is low. He concluded that
increasing the free float and increased liquidity seems to be one of the best ways
to attract international investors. Erikson and Witd(2011) indicated that the
sensitivity of the cash flows to investment in the qualified marketsis rather due
to difficulty of measuring the final investment opportunities and cash flows than
just financilal limitations. In such circumstances, the deviation observed
between sensitivity of the cash flows and investment may lead to deviations in
measurement of the Q error (Q).
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Research hypotheses
Given the background and theoretical research, research hypotheses were
formulated as follows:
1. there is a significant relationship between the company's cash flow and
capital expenditure due to the increase of technology coefficient.
2. there is a significant relationship between the proportion of shares issued and
the cash flows stored (accumulated) companies due to the increasing rate of
technology coefficient.
Analytical framework
Generally,
the Analytical framework is estimated as follows:
AFE  0  i * Independen tVariable  
H 0 : i  0
the model is not significant
H1 : i  0
The model is significant.
The research models taken from Richardson (2003) and the modified variants of
the research, Kamplv et al (2013), have been estimated as follows:
The first model is related to the first hypothesis:
Investmenti ,t   0  1QiMKT
  2 FundQi ,t   3CashFlowi ,t   4 Issuancei ,t   5 Bubble t
,t
  6 ( Issuancei ,t * Bubble t )   7 CapitalSto ck i ,t 1   8Tecbubblei ,t   iinv
,t
The second model is related to the second hypothesis:
CashSavingi ,t   0  1QiMKT
  2 FundQi ,t   3CashFlowi ,t   4 Issuancei ,t   5 Bubble t
,t
  6 ( Issuancei ,t * Bubble t )   7 CashStock i ,t 1   8Tecbubblei ,t   icash
,t
Methodology
The methodology used in this study is a correlative- descriptive research ( in a
correlativedescriptive study, the researcher examins the relationships
between two or more variables). the method of reasoning is deductive/
deductive. It is deductive because for the theoretical framework and research
background, libraries and the Internet articles are used. On the other hand, it is
inductive since data gathering included collecting primary data for accepting or
rejecting the hypothese. In this study, according to available types of data and
methods of statistical analysis, the method of "data panel data" was used to
study the effect of cash flows, capital expenditure and value of shares issued by
the technology coefficient of the companies, and the predictor variables were
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ISSN: 1298-0595
Vol.27; No. 4 (2015)
estimated and discussed from two different aspects. these variables are tested
among different companies in the period 2008-2013.
Methods and Data gathering tools
Data gathering for each type of research is quite important. in order to conduct
a theoretical study and a review of the literature in this study, library method is
used including taking advantage of books and scholarly articles and
dissertations both in Persian and Latin.since the related data of the criteria
include lots of accounting figures listed in the companies’ audited financial
statements, the current data were extracted manually from data available in the
research management sites,The required data from the available financial data in
the Islamic research, development, and studies management which depends on
the Stock Exchange Organization,www.rdis.ir , codal network, comprehensive
information systems www.codal.ir, Iran’s Financial Data Processing Center,
www.fipiran.com,
and the CDs of the Securities and Exchange.
Methods of data analysis
Data analysis phase is a multi- phase process in which data provided
through gathering tools in the statistical sample are summarized, encoded,
classified,finally processed to create the required types of analyses and
relationships between the information and test the hypothese. During analysis
stage, it is important for the the researcher to analyze the information in the
direction of the research’s goal, to answer the research questions, and to
evaluate his/ her own
research hypotheses ( Hafez nia, 2006).
For data analysis and hypothesis testing, the required information will be
collected from the financial statements of after gathering the required data of
these companies, the research hypothese are analyzed by correlation and
regression analysis and data panel statistical method used for companies under
examination for a period of six years (2008-2013). first, the initial calculations
are conducted in the worksheets of Excel software and dataare prepared for
further analysis. Then, in order to perform the final analysis Spss20, Eviews 7
and Minitab16 software are used.
Satistical samples of the study
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ISSN: 1298-0595
Vol.27; No. 4 (2015)
In the present study, all firms listed in the Tehran Stock Exchange for a period
of six years, from 2008 to 2013, are considered as the statistical population of
the study. Research sample was selected after applying the assumptions through
the elimination method. After applying the hypothese, 107 companies from 19
industries were remained which were considered as the samples taken and their
data were analyzed. The features ofthe research examples are as follows:
1) During the period in question(2008), the companies which were accepted by
the Tehran stock exchange by the end of 2007 and their names were not deleted
from the list till the end of2013.
2 ) during this period, their shares were exchanged actively the Stock Exchange.
3) to enhance the comparability of companies surveyed, their financial period
should come to an end in 29 March and there should be any change during the
financial
period.
4) due to differences in their performance, they should not be a component of
financial intermediation firms (investment, holding, leasing and banking and
insurance).
5) The required information is available.
Test results of second hypothesis using fixed effects
Dependent variable:accumulated cash flows- no. of Views: 642 years/
firm
equation
Pvalue t coeeficient variable
Value
positive
0/0000 7/9604 0/1607
Variable coefficient
positive
0/0267 1/1422 0/5419
Cash flows
insignificant 0/5698 27/9806 0/0333
Issued shares ratio
negative
0/0321 -1/6875 -0/0183
Tobin's Q
negative
0/0235 -1/7173 -0/0082
Profitability of capital
expenditures
positive
0/0188 1/1146 0/0009
Variable coefficient
insignificant 0/2865 1/0669 0/0219
contrast ratio of stock price
index published
negative
0/0379 -1/3410 -0/1150
Cash capital ratio
positive
0/0276 1/6475 0/0063
Technology coefficient
0/8454
variable
25/2949
( P  Value )
)0/0000(
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In considering the significance of the model, due to the fact that the probability
of F statistics is >0.05 (0.0000), with a significant certainty of 95% of all
models. The model also suggests that the coefficient of determination0.8454%
of corporate capital expenditures is explained by the variables in the model.
Test results of second hypothesis using fixed effects
Dependent variable:accumulated cash flows- no. of Views: 642 years/ firm
equation
Pvalue t
coeeficient variable
Value
positive
0/0000 7/1529
0/0966
Variable coefficient
positive
0/0328 1/5352
1/3977
Cash flows
positive
0/0465 -11/2935 0/2159
Issued shares ratio
negative
0/0298 -1/6997 -0/0115
Tobin's Q
positive
0/0315 1/3168
0/0023
Profitability of capital
expenditures
insignificant 0/6903 0/3986
0/0019
Variable coefficient
negative
0/0464 -1/6806 -0/0103
contrast ratio of stock price
index published
positive
0/0269 1/0044
0/0611
Cash capital ratio
positive
0/0105 1/1885
0/0011
Technology coefficient
0/6046
coefficient of determination
7/0697
( P  Value )
)0/0000(
In considering the significance of the model, due to the fact that the probability
of F statistics is >0.05 (0.0000), with a significant certainty of 95% of all
models. The model also suggests that the coefficient of determination 0.6046 of
accumulated cash flows is explained by the variables in the model.
Results and test approach of the first hypothesis
In the significant analyis of the coefficients and ased on the results, the
probability of t coeeicient is less than 0.05 for the variable coefficient of the
issued shares (0.0465), so there is a significant relationship between the ratio of
the issued shares and the accumulated cash flows with respect to an increase in
the technology coefficient by 95%. It is a significant factor in the evaluation of
the results, since the probability of t-statistic for the coefficient of variable cash
flows is less than 0.05 (0.0267), the result of a significant relationship between
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cash flows and capital expenditures due to the fact that the increased company
Technology is at 95 % approved. The first research hypothesis is accepted and it
can be expressed that there is a significant relationship with 95 percent of the
company's cash flow and capital expenditures due to the increase of technology.
The positive coefficient of this variable (0.5419) suggests a direct relationship
between cash flow and capital expenditures to increase the company's
technology, so that a 1-unit increase in cash flow, capital expenditures would
increase technology in companies according to the amount of this increase by
0.5419. these cash flows can be used for predicting the capital expenses of the
firms which in turn, after a while, will attract the investors and creditors and
will increase the company’s value.
Results and interpretation of the Second hypothesis test
In the significant analyis of the coefficients and ased on the results, the
probability of t coefficient is less than 0.05 for the variable coefficient of the
issued shares (0.0465), so there is a significant relationship between the ratio of
the issued shares and the accumulated cash flows with respect to an increase in
the technology coefficient by 95%. Therefore, the second hypothesis is
approved and considering the certainty of 95%, it can be said that there is a
direct relationship between the proportion of shares issued and the cash flows of
the companies due to increase stacking technology. This positive coefficient
(0.2159) represents a direct relationship between the ratio of the issued shares
and the accumulated cash flows of the companies in terms of icreased
technological coeeficent so that 1 unit increase in the issued shares will increase
the accumularted cash flowsby 0.2159. According to the analyses made on the
second hypothesis, it can be concluded that there is a direct and significant
relationship between the proportion of shares and accumulated cash flows of
companies due to the increase of technology coefficient Thus, it can be inferred
that increasing the proportion of shares issued could increase the accumulated
cash flows of companies due to an increase in the rate of technology coefficient
by 0.2159. The issued shares can be used for cash flow forecast. In this case,
the managers will accumulate parts of the issued shares in the accumulated cash
assets that in the long term, would reduce the probability of bankruptcy.
The results of this study confirm with the results of previous studies. Previous
research suggests a direct relationship between cash flow and capital
expenditure at all levels of companies and focusing on the results of this study,
it can be suggested that the rate of technology of the companies affects their
capital expenditures, cash flow and equity. The study acknowledges that there is
a direct relationship between cash flow, capital expenditure and increased
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proportion of shares issued by companies. This study is in accordance with the
results of Fleurus Harris( 2013), Kastrydv (2010), Almeida et al.( 2007),
Gordon (2000), Etemadi( 2006), Murad Ahmedi ( 2011), Tehrani and
Hesarzadeh (2011) indicating a positive relationship between cash flow and
capital expenditure.
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