Effects of Flexibility on Capital Structure Decisions in Family Firms

The present study evaluates marginal value of cash for investors. It also undertakes to examine the relationship between financial flexibility and capital structure, as well as effects of financial flexibility on capital structure decisions in family firms listed at Tehran Stock Exchange. A total number of 60 companies are sampled between the years 2008 to 2013. A panel-pool data analysis method is used for testing hypotheses. Results indicate that marginal value of cash using the methodology of Faulkender is positive. Also, a significant and reverse relationship is found between financial flexibility and debt ratio. On the other hand, marginal value of cash highly affects the capital structure decisions of family firms.