International Journal of Innovation and Applied Studies ISSN 2028-9324 Vol. 10 No. 3 Mar. 2015, pp. 923-931 © 2015 Innovative Space of Scientific Research Journals http://www.ijias.issr-journals.org/ Corresponding Author: Mohammad Reza Asgari 923 The relationship between firm's growth opportunities and firm size on changes ratio in retained earnings of listed companies in Tehran Stock Exchange Mohammad Reza Asgari 1 , Ali Asghar Shaban Pour 2 , Reza Ataei Zadeh 3 , and Samaneh Pahlavan 2 1 Department of Accounting, Yadegar-e-Imam Khomeini (RAH) SHAHRE-REY Branch, Islamic Azad University, Tehran, Iran 2 Department of Accounting, South Tehran Branch, Islamic Azad University, Tehran, Iran 3 Young Researchers and Elite Club, Ardabil Branch, Islamic Azad University, Ardabil, Iran Copyright © 2015 ISSR Journals. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. ABSTRACT: The purpose of this research is to investigate the relationship between firms growth opportunities and firm size on changes ratio in retained earnings of listed companies in Tehran Stock Exchange. This study is a literature study and analysis - scientific, and is based on the analysis of panel data (panel data). In this study, the financial data of 101 companies listed in Tehran Stock Exchange during the period 2006 to 2011, has been reviewed (606 companies - the Year). To analyze the results of research, software Spss20, Eviews7, Minitab16 are used. in connection with the first hypothesis of research, we find that there is an inverse and significant relationship between company's growth opportunities and changes ratio in retained earnings ratio of companies. Finally, results of research in connection with the second hypotheses confirmation suggest that is a direct and significant relationship between firm size and with changes ratio in retained earnings of companies. KEYWORDS: Capital structure, The Company's Growth Opportunities, Changes Ratio of Retained Earnings, Firm Size, Panel Data. 1 INTRODUCTION The company’s dividend policy is its long term financial strategy with regards to deciding how much earnings to pay out as against retaining them for investment in the company. It leads to division of profits between dividend payment to shareholders and reinvestment in the company. There are no transaction and bankruptcy costs associated with retained profits [2].Thus, retained earnings constitute a major source of finance for companies. Investors prefer capital gains over dividends, because capital gain taxes can be deferred into the future and are taxed at a minimum rate while taxes on dividends must be paid as soon as they are received and are taxed at a relatively higher rate. Whenever there is an increase in personal income tax of the shareholders, companies tend to retain and reinvest more of their earnings. Payment of earnings as dividend is associated with agency cost and an opportunity for existing shareholders is lost to reinvest their earnings for growth of the company.. The level of internal funds conveys information about growth prospects of companies [6]. Growth firms pay lower dividends, reinvest more of their earnings, and provide a greater percentage of their total returns in the form of capital gains. Companies with a few major investment opportunities would limit paying out a larger percentage of their earnings. For this reason, higher dividends are paid in stable, low-growth industries. By contrast, high- growth companies with lots of investment opportunities are likely to pay low dividends because they have profitable uses for the capital. So, growth is likely to place a greater demand on internally generated funds. Higher growth firms use less .[14] This is because conflicts of interest between debt and equity holders. Myers (1977) also argues that firms with growth potential would have less capital structure. Growth opportunities can produce moral hazard effects and push firms to take more risk. In order to mitigate this problem, growth opportunities should be financed with equity or retained earnings instead of debt. It has been predominantly supported by the empirical studies that internally generated funds have enormously contributed to financing growth of corporations in recent times.[16].Most previous researches investigated