Relationship Between Cost of Capital and Accounting Criteria of Corporate Performance Evaluation: Evidence from Tehran Stock Exchange

The main objective of this study was to investigate the effect of capital cost on the financial performance of companies listed on the Tehran Stock Exchange. For this purpose, a sample of 350 firm-years among companies listed in Tehran Stock Exchange during the years 2006 to 2010 were studied. In this study we use returns on asset (ROA) ratio and return on equity (ROE) as the accounting criteria of corporate performance evaluation. The results indicate that there is a significant and positive relationship between the weighted average cost of capital (WACC) and criteria of corporate performance evaluation (ROA and ROE). Also, the relationship between the control variables of firm size and these profitability ratios is positive and significant.