Study on the Relationship Between Financial Constraints and Stock Return in Tehran Stock Exchange

This survey is made on manufacturing firms accepted in Tehran Stocks Exchange during the period 2004-2008. The objective of study was to examine the firms financial constraint of firms and to contribute firms and investors in identifying financially constrained firms and the effect these constraints have on stock return. Developed KZ (Kaplan and Zingales) index was used to measure financial constraint. Also, it has been attempted to measure the effect of firms size on the financial constraint and stock return. Preceded by data analysis, variables reliability analysis, Chow and Hausman test were used to determine an appropriate model to estimate parameters and the effect of independent variable on dependent variable. Then, the research hypotheses were tested through random effects model. Data analysis revealed that the more the financial constraints in firms the less the firms return and, also, the larger the firms size the less the financial constrain and, consequently, the higher the return rate.