Relationship between Capital Cost and Market Measures of Corporate Performance Evaluation: Evidence from the Tehran Stock Exchange

ABSTRACT: The main objective of this study is to investigate the effect of capital cost on the market measures of performance evaluation of listed companies in the Tehran Stock Exchange. For this purpose, a sample of 350 firm-years during the year 2006 to 2010 was reviewed and was tested. To determine the appropriate method for estimating regression models and hypotheses testing, we used the F-Limer test and Hausman test which in both, the fixed effects (panel method) was used to estimate the models. In the present study, the ratio of Tobinʹs Q (market value) (TQ), Price to Earnings (P/E) and market value to book value (M/B) have been used as market measures of corporate performance evaluation. The results indicate that there is negative and significant relationship between weighted average cost of capital (WACC) and the ratios of price to earnings and market value to book value. But significant relationship between the weighted average cost of capital and Tobin Q ratio has not been observed. The results showed that there is positive and significant relationship between firm size (SIZE) and ratios of Tobin Q and market value to book value. But significant relationship was not found between firm size and the ratio of price to earnings.