The Effect of Business risk management and Life Cycle on Debt Capacity of the Companies Listed in Tehran Stock Exchange

Document Type : Original Article

Authors

1 Assistant Prof., Department of Accounting, Payam Noor University, Tehran, Iran

2 Assistant Prof, Department of Accounting,, Zanjan branch, Islamic Azad University, Zanjan, Iran

3 MA. In Accounting, Payame Noor University, Tehran, Iran

Abstract

 Increasing the debt capacity leads to improving the company's financial flexibility. Financial flexibility plays an important role in the financial empowerment of the company regarding investment in the future, which is important to maintain flexibility according to the existing risks, which is possible with risk management. The current research aims to track the effect of business risk management and life cycle on the debt capacity of the companies listed in the Tehran Stock Exchange. In this regard, a sample of 124 companies from the Tehran Stock Exchange along a period of 2012-2021 were selected as sample and the research hypotheses were tested with aide of multiple linear regressions based on pooled data. The results showed that business risk management has a positive effect on the debt capacity of companies, and this business risk management effect during the recession stages of the life cycle of companies is more dominant. As expected, in the conditions of better use of business risk management mechanisms, the debt capacity of companies has also improved significantly. With better applying of risk management mechanisms, the reliability of loans and creditors to the company is increased too and as a result, the company's debt capacity is also improved.

Keywords


  1. Abdolbaghi Ataabadii, A., & Ahmadi, S. (2019). The Effect of Restructuring on Financial Recovery with Emphasis on Corporate life cycle at TSE. Financial Management Perspective9(26), 147-170. doi: 10.52547/jfmp.9.26.147(In persian).

2.Adriano A. Rampini and S. Viswanathan (2010). Collateral, Risk Management, and the Distribution of Debt Capacity. The journal of finance. 6.

3.Aflatooni, A. (2019). The Deviation from Target Capital Structure and Firms’ Value. Financial Management Perspective9(26), 9-31. doi: 10.52547/jfmp.9.26.9 (In persian).

4.Aprilia,GF; Tobing, R L; Tampobolon, L. (2022).  The Moderating Effects Of Enterprise Risk Management (Erm) On Managerial Ownership, Leverage, And Company Growth On Company Value In The Financial Industry Sector Listed On Indonesia Stock Exchange 2015-2019. Primanomics: Jurnal Ekonomi & Bisnis. 20 (2). 113-125.

5.Aref Menesh, Z; Ramesheh, M; Shokouhi, H. (2023) The relationship between organizational risk management and company performance with the role of competitive advantage and financial literacy. Financial accounting and audit research. (54), 79-100 (In persian).

6.Baryannis, G., Validi, S., Dani, S. and Antoniou, G. (2019). Supply chain risk management and artificial intelligence: state of the art and future research directions’, International Journal of Production Research, 57 (7), 2179–2202.

7.Behbahaninia, P. S., Akbarian Shurkaei, R., & Hosseinzadeh, F. (2019). Relationship  of Capital Structure Choice, Information Asymmetry, and Debt Capacity in Tehran Stock Exchange Listed Companies. Financial Management Perspective, 8 (24), 9-34. (In persian).

8.Choudhury, A., Behl, A., Sheorey, P.A. and Pal, A. (2021). Digital supply chain to unlock new agility: a TISM approach, Benchmarking: An International Journal, 28 (6) 2075-2109.

9.Chy, Mahfuz, Gus De Franco, Barbara Su (2020). The effect of auditor litigation risk on clients' access to bank debt: Evidence from a quasiexperiment, Journal of Accounting and Economics, https://doi.org/10.1016/j.jacceco. 2020.101354

10.Domnina, O., Sakulyeva, T., Solovev, A. and Rogulin, R. (2021). Risk management in supply chains under COVID-19 conditions, Int. J. Business Performance and Supply Chain Modelling,

11.Falato, Antonio and Kadyrzhanova, Dalida and Sim, Jae W. and Steri, Roberto, Rising Intangible Capital, Shrinking Debt Capacity, and the US Corporate Savings Glut (2020). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3198030 or http://dx.doi.org/10.2139/ssrn.3198030

12.Gan, L. & Xia, X. (2019). Idiosyncratic Risk, Managerial Discretion and Capital Structure.International Review of Economics and Finance, 64, 586-599.

13.Ghaderi, S; Tari Verdi, Y. (2019). Corporate risk management model and its consequences in effective control of company characteristics. Financial Accounting and Audit Research, (46), 106-77 (In persian).

14.Gordon, Lawrence A. Loeb; Martin, P; Tseng, CY. (2009). Enterprise risk management and firm performance: a contingency perspective", J. Account. Public Policy, (28), 301–327.

15.Hejazi, R; Valizadeh Larijani, A; Kimasi, F. (2015) The role of debt capacity in choosing effective strategies to reduce underinvestment problems. Financial Accounting, (30), 65-93 (In persian).

16.Hsu, MF., Hsin, YS. & Shiue, FJ. (2022).  Business analytics for corporate risk management and performance improvement. Ann Oper Res 315, 629–669 https://doi.org/10.1007/s10479-021-04259-x

17.Khod-Saz, M; Ranjbar, M. H. (2016). Final leverage and its adjustment speed in the life cycle of companies listed on the Tehran Stock Exchange. Modern Management Engineering, 6(1), 65-76(In persian).

18.Lemmon, N. Michael L.   andJaime F. Zender (2019). Asymmetric Information, Debt Capacity, and Capital Structure. Journal of Financial and Quantitative Analysis,  54 (1) , , 31 – 59. DOI: https://doi.org/10.1017/S0022109018000443

19.Mukul, Bhatnagar, Ercan Özen, Sanjay Taneja, Simon Grima,and Ramona Rupeika-Apoga. (2022) The Dynamic Connectedness between Risk and Return in the Fintech Market of India: Evidence Using the GARCH-M Approach. Risks 10 (209), 2-16

20.Mehravar, M; Kargar, H. (2022) The role of social responsibility on the relationship between auditors' legal claims risk and bank financing. The 19th National Accounting Conference of Iran, Al-Zahra University. December (In persian).

21.Moradi, M; P. M, S. E. (2022) Investigating the effect of inflation rate risk and company specific risk on the speed of adjustment of the company's capital structure: the method of generalized moments. Experimental Accounting Research, 11(29), 51-23 (In persian).

22.Najafi Moghadam, A. (2016). The effect of financial flexibility on capital structure decisions using the two models of Brian Clark and Fulk Ender Wang. Financial engineering and securities management. 8 (33), 182-153 (In persian).

23.Oino, I; Ukaegbu, B. (2015). The impact of profitability on capital structureand speed of adjustment: An empirical examination of selected firms inNigerian stock exchange, Research in International Business and finance, 9 (35). 111-121

24.Piri, P; Mansoorfar, Gh; Barzegari Sedkiani, S. (2016). Investigating the effect of maintaining cash resources on debt capacity and presenting a new model for debt capacity (Case study: Companies admitted to Tehran Stock Exchange). Financial accounting empirical research. (24), 219-235 (In persian).

25.Rahmani Norouzabad, S; Anvari Rostami, A.A; Khalili, K; Mohammadi, E. (2019). Financing strategies of companies in normal and crisis conditions: Evidence from Tehran Stock Exchange. Journal of asset management and financing, 8 (2), 13-30 (In persian).

26.Rahnemay Roodpashti, F; Amini, H; Azizi, F; Norouzi, M (2022) Evaluation of risk management using gray multi-criteria decision making with entropy weight. Financial engineering and securities management. (64), 495-516 (In persian).

27.Ranjbar, M.H; Rajab Derif, H; Khani Zelan, A. (2017). Investigating the relationship between capital expenditures and investment efficiency in different stages of the company's life cycle. Journal of Accounting Reviews, 5 (18), 47-64 (In persian).

28.Richard A. Brealey, Ian A. Cooper, Michel A. Habib (2020). Cost of capital and valuation in the public and private sectors: Tax, risk and debt capacity. Volume47, Issue1-2. Journal of Business finance & accounting. 163-187

29.Rostami, V., Mehravar, M., & Kargar, H. (2022). The effect of risk management on the speed of adjusting financial leverage in the life cycle stages of companies. Journal of Accounting Advances, 14 (1), 59-88 (In persian).

30.Rostami, V; Rezaei, L. (2018). The effect of disclosure quality rating and appropriate information on debt capacity. Knowledge of financial accounting, 6 (1), 107-136 (In persian).

31.Rostami, V; Rezaei, L; Bazargani, Z. (2022). The effect of competition in the product market and life cycle on the business strategy of companies with an emphasis on new companies. Smart Business Management Studies, 9 (36), 157-182 (In persian).

32.Saeidi, A; Abesht, K. (2012). Debt capacity in companies admitted to Tehran Stock Exchange. Accounting and auditing reviews, (72), 43-64 (In persian).

33.Schulte, J. (2017). Challenges for Integrating Sustainability in Risk Management – Current State of Research. Department of Strategic Sustainable Development, Blekinge Institute of Technology, 1422.

34.Silva Lopes, T. (2022). van Tulder, R., Verbeke, A., Piscitello, L. and Puck, J. "Extraordinary Risk Management in International Business Strategy", International Business in Times of Crisis: Tribute Volume to Geoffrey Jones (Progress in International Business Research, Vol. 16), Emerald Publishing Limited, Bingley, 97-110.

35.Zahira, J.F.; Balaputhiran, S.; Niroshini, S. (2021). The Impact of Debt Capacity on Firm’s Growth: A study of Listed Manufacturing Companies in Colombo Stock Exchange. 5th International Research Conference of Uva Wellassa University, ID: IRCUWU2021-305.

  1. Zhu D, Zhe Li b, Arunodaya R. (2023). MishraEvaluation of the critical success factors of dynamic enterprise riskmanagement in manufacturing SMEs using an integrated fuzzy decision-making model. Technological Forecasting & Social Change 186 (2023) 122137.(1), 186.1-12.