The Effect of Capital Structure and Ownership Structure on Information Content of Reported DPS and EPS by Using Cumulative Earning and Return Method for Companies
Listed on Tehran Stock Exchange (TSE)
Dr. Asghar Soltani* Massoud Nadem**
Isfahan University Payam Nour University
Introduction
This study is motivated by two factors. First, while there is extensive literature that discusses the role of ownership structure in corporate governance and other factors around the world (Schleifer and Vishny, 1997; La Porta et al. 1999), there is scarce evidence from prior literature that empirically examine the relationship between ownership structure and information content of reported earnings in less developed economies. Second, there is limited evidence from prior studies that look into the role of institutional investors as a determinant of ownership structure and this paper is the first to investigate the role of institutional investors by examining the effect of institutional ownership on information content of reported earnings in Iran economy.
This study contributes to our understanding of how companies’ ownership structure affects the information content of reported Dps and Eps and whether the proportion of shares owned by institutional shareholders could be a measurement for ownership structure in TSE or not? Another contribution of this study is investigating the relationship between capital structure and information content of reported Dps and Eps among companies listed on TSE for the first time.
Research Hypotheses
The first hypothesis of this research is:
H1: The capital structure has effect on information content of reported DPS and EPS.
The second hypothesis of this research is:
H2: The ownership structure has effect on information content of reported DPS and EPS.
Research method
This study is an experimental research that investigates the effect of specific institutional factors on information content of reported DPS and EPS. In this research, MultipleLinearRegression models are used to analyze data. To test the significance of the regression models and the significance of coefficients of regression F-Test and T-Test were used. Also the research sample consists of 96 companies listed in Tehran Stock Exchange during the period 2004 to 2011.
Results
The results of testing hypothesis show that the capital structure has a significant effect on information content of reported DPS and EPS so that with increasing reliance of companies on debt financing, the information content of reported DPS and EPS is reduced. The results also show that the ownership structure has a positively significant effect on information content of reported DPS and EPS so with increasing presence of institutional shareholders in corporate ownership structure, the information content of reported DPS and EPS will increase, too.
Discussion and Conclusion
In this study, two main hypotheses were tested. In the first hypothesis, the impact of capital structure on capital structure and in the second hypothesis, the effect of ownership structure on Information Content of Reported DPS and EPS were studied. These two hypotheses were examined using two regression models. The results of the first model represent that the capital structure (source of financing) has a significant reverse impact on the Information Content of Reported DPS and EPS. The results obtained from the second model suggest that the amount of institutional ownership (ownership structure) has a positive and significant impact on the Information Content of Reported DPS and EPS. Overall results of this study indicate that the Information Content of Reported DPS and EPS for the companies accepted in Tehran Stock Exchange, affected by ownership structure and the capital structure (through debt or capital).
Keyword:EPS, DPS, Capital Structure, Ownership Structure, Information Content, Cumulative Earning and Return
* Assistant Prof. of Accounting Department
** Member of Accounting Department
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