The Impact of Financial Liberalization on the Volume of Investments in Listed Companies on the Tehran Stock Exchange

اقتصاد پولی مالی

Article 2, Volume 26, Issue 17, September 2019, Pages 27-44   

Document Type: پژوهشی

DOI: 10.22067/pm.v26i18.71452

Authors

mahdi salehi¹; mohammad reza abbas zadeh¹; mostafa zangiabadi^{* 1}; elahe khodamoradi²

¹ferdowsi university

²azad eslami

Abstract

Introduction
As the largest amount of capital around the world is traded through stock markets, and the national economy is heavily influenced by these markets performance, the increase in listed company’s investment volume affects the development and improvement of company performance and so, it will attract more capital towards the capital market and improve the economic situation. On the other hand, given the important role of foreign direct investment (the index of financial liberalization) in the economy of each country, most countries try to attract this capital. In fact, the global market for attracting these funds is highly competitive. This competition is particularly high among developing countries due to the need for rapid access to development and a lack of funds. Such countries seek to attract different types of capital, and they make various arrangements to attract these types of funds.
 Theoretical framework
The liberalization of capital flows drives capital flows from high-capital to low-capital economies. These capital flows should complete domestic savings in low-capitalization countries and lead to increased investment in these countries. Capital flows can improve technology. There are indirect ways through which financial liberalization can improve the economic growth of countries. Financial liberalization, with transferring capital between countries, can help improve investment by increasing financial sector development. According to existing theories about the effect of financial liberalization on consumption, since consumers are often risk averse, they use financial markets to reduce investment risk, which will increase the likelihood of investing in companies accepted in financial markets. Therefore, the study of macroeconomic factors facilitating the investment process in listed companies at the stock exchange will be an issue.
Methodology
In this study, the impact of financial liberalization on the investment rate of listed companies on the Tehran Stock Exchange and Iran Over the Counter Market was evaluated and due to the lack of consensus among previous researches on how to measure the concept of financial liberalization, In this study, three measures such as potential financial liberalization (Heritage index), financial liberalization index (Reverse of difference  between US real interest rate and Iranian real interest rate) and interest rate control (interest rate changes) were used to measure financial liberalization and  its effect on the amount of corporate investment (net amount of  operational activity investment class in the audited annual cash flow statement disclosed in each company) in the period 2002-2015 in companies listed at Stock Exchange using the structural equation approach, was measured.
Results & Discussion
The results indicate a significant positive relationship between financial liberalization and investment. In other words, with the liberalization of finance and the facilitation of foreign capital inflows, the reduction of capital costs and financing, companies have more resources to develop and complete their own operational projects and face easier conditions to Access these resources. Therefore, the company's management investing interest will increase and use cheaper resources than before liberalization. The results of this study are consistent with the findings of the study: Henry (2000); Hermes et al., (2005); Forbes & Warnock (2012) and Jadiyappa et al., (2016) are consistent.The results also show that the direct relationship between the interest rate changes and the financial liberalization index (Reverse of difference between US real interest rate and Iranian real interest rate) with the investment rate is negative.
Conclusions & Suggestions
The results also show that the direct relationship between the interest rate changes and the financial liberalization index (Reverse of difference between US real interest rate and Iranian real interest rate) with the investment rate is negative. In other words, there is a trade-off between interest rate and private equity investment, Therefore, the reduction of interest rate increases investment, so, financial sector policies that affect the long-term interest rate as well as the growth and development of money markets improve the productivity of the capitalized. increase savings and increase the present value of the profitability of investment projects. Therefore, it is suggested that in future research, in addition to those factors mentioned in the present study, the factors affecting financial liberalization will be identified in order to formulate the final model of financial liberalization measurement.
 

Keywords

Key words: financial liberalization; Investment; Heritage Index; structural equations; real interest rate

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