The effect of stock market development on the performance of non- financial

The current study examines the effect of stock market development on capital structure on one hand and capital structure on firm performance on the other hand. It also examines some variables related to firm specifications. To do so, unbalanced panel data of 175 non-financial firms in securities and exchange organization of country and a recursive equation system including two equations related to capital structure and firm performance have been used. Evaluation of the stock market development effect on capital structure and considering how capital structure affects firm performance makes it possible to evaluate direct effect of stock market development on firm capital structure and also its indirect effect on firm performance. In this regard, some prevalent market development indices in terms of size, activity and efficiency of market and also performance criteria such as market value added and Tobin's Q have been examined. The result shows a positive and significant effect of debt ratio on firm performance, a positive and significant effect of stock market size and activity on capital structure and finally a positive and significant effect of stock market size and activity on performance of non-financial firms in Iran.