Relationship between Capital Structure and Financial Performance by Concentrating on Business Cycles: An analysis of Debt/Stock-nexus Firms

This paper investigates the relationship between capital structure and financial performance for firms listed in Tehran stock market, by concentrate on the macroeconomic condition. In this order, we divided the firms to two groups by considering their financing Patterns, including firms that main share of their financing is through stock (the stock-nexus) and firms that main share of their financing is through debt (the debt-nexus). The GMM results show that capital structure has a negative and significant effect on firm performance. Of course, this negative effect is greater for the debt- nexus firms. Also, the happening of economic recession intensifies the negative effects of capital structure on performance in the debt-nexus firms. It means that at economic recession circumstances, the stock-nexus firms have better performance than the debt- nexus firms. Hence, we suggest that firms should apply more stock in their financing patterns to keep them in facing of economic recession.