Financial Fragility and Corporate Risk-Taking: With Emphasis on the Moderating Role of Firm Size

This study aims to investigate the relationship between financial fragility and corporate risk-taking, emphasizing the moderating role of company size, in order to determine whether fragility leads to caution or, according to prospect theory, strengthens risk-taking incentives. The present study is applied in terms of purpose and descriptive-correlational in terms of method. The statistical population included non-financial companies listed on the Tehran Stock Exchange during the years 2020 to 2024, and a sample of 168 companies was selected by elimination method. The modified Altman Z-score index was used to measure financial fragility, and the adjusted asset return volatility was used for risk-taking. The hypotheses were tested with an ordinary least squares regression model and controlling for fixed effects of industry and year. The results showed that financial fragility has a positive and significant relationship with corporate risk-taking; this means that with increasing financial vulnerability, managers are more inclined to adopt risky strategies. Also, company size negatively and significantly moderates this relationship; So that the driving effect of fragility on risk-seeking behavior is weaker in larger companies than in small companies. This study, confirming prospect theory, showed that managers in a state of fragility resort to a form of gambling to avoid certain failure, although large companies act more cautiously due to external supervision. The innovation of the research is in applying the behavioral-financial framework in the Iranian market, which showed that fragility, contrary to traditional theories, is not an obstacle, but a driver of defensive risk-taking.