Accounting & Marketing

Investigating the Relationship between Over-Valuation Stock Price and Debt Costs of Companies with Financial Health Based on Black, Scholes and Merton (BSM) Model

Abstract

 Gholam Reza-Zomorodian and Majid Rahmani Firozjaee

This study aims to investigate the relationship between over-valuation stock price and debt costs of companies with financial health in Tehran Stock Exchange. In this regard, at first the researcher identifies companies with financial health based on Black, Scholes and Merton (BSM) model, and then tests the hypotheses. This study is applied and according to the data collection method, it is descriptive (correlation) with ratio scale of measuring data. To test the hypotheses, we collect the accounting data from 2011 to 2015 and analyze the data based on it. According to the results, there is a positive and significant relationship between the over-valuation and the debt cost of companies with financial health, and the relationship is intensified by the information asymmetry. The results of this study confirm the findings of Chiou and Shu research on the existence of a positive and significant relationship between over-valuation and debt costs.