The Effect of Financial Flexibility on Firms' Risk Taking with the Moderating Role of Institutional Ownership

Document Type : Research

Authors
Tahereh Sajjadirad
Mohsen Hamidian
Samaneh Eftekhari
Department of Accounting, ST.C., Islamic Azad University, Tehran, Iran.
10.22034/smajournal.2025.538192.1102
Abstract
In the unstable economic and financial landscape of developing markets such as Iran, where firms face financial constraints and environmental uncertainties, understanding how financial flexibility affects the risk-taking behavior of firms is essential for improving the strategic management of financial resources. This is the primary objective of the present study. Additionally, by examining the moderating role of institutional ownership in this relationship, deeper insights into the various influencing conditions are sought. This research employs a quantitative approach and multivariate regression analysis, utilizing data collected from 153 firms listed on the Tehran Stock Exchange over the years 2013 to 2023, analyzed using dynamic panel econometric techniques and EViews software. The results indicate that an increase in financial flexibility leads to a rise in firms’ risk-taking, suggesting that financial flexibility can act as a strategic resource that enables firms to make riskier decisions by providing sufficient financial resources. Furthermore, it was found that institutional ownership significantly strengthens this relationship, indicating the effective supervisory role of institutional owners in the Iranian environment for optimal resource allocation to enhance risk-taking. This study provides novel insights into the role of financial flexibility and institutional ownership in risk management and offers valuable policy recommendations for stakeholders engaged in directing high-risk investments.

Keywords

Subjects

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Strategic Management Accounting
Volume 2, Issue 2
Spring 2025
Pages 99-125