Examining the Moderating Role of Corporate Financial Constraints in the Relationship between Financialization and Technological Innovation

Introduction: Technological innovation has emerged in recent decades as one of the primary drivers of sustainable competitive advantage and long-term corporate growth. In complex economic environments, the ability of firms to develop and apply new technologies plays a decisive role in enhancing productivity and financial performance. However, this innovative capacity is not solely dependent on strategic intent or technical expertise; it is strongly influenced by financial structures and the level of access to capital resources. Financialization, as a key dimension of corporate finance, can exert dual effects on innovation: on the one hand, by increasing liquidity and expanding financing channels, it facilitates innovation; on the other hand, excessive focus on short-term financial assets may restrict resources allocated to research and development. Previous studies have primarily examined the direct effect of financialization on innovation, while the moderating role of financial constraints has received far less attention. In the domestic literature, the focus has largely been on the general consequences of financialization, leaving a significant gap regarding how financial constraints influence this relationship. To address this gap, the present study investigates the moderating role of financial constraints in the relationship between financialization and technological innovation among firms listed on the Tehran Stock Exchange during the period 2018–2023. Methods: This research is descriptive–correlational in nature and applied in purpose. The statistical population includes all firms listed on the Tehran Stock Exchange during the study period. After applying research limitations and systematically excluding firms with incomplete data or irregular reporting, a final sample of 224 firms was selected. Data were organized using Excel and analyzed with EViews 10. Descriptive statistics such as means and standard deviations were reported for the main variables. Inferential analysis included unit root tests, the F-Limer test to determine panel data structure, the Hausman test to select the appropriate model, significance tests of regression coefficients, and sensitivity analysis to assess the robustness of results. Results and discussion: The results of the first model indicate that corporate financialization under normal conditions exerts a positive and statistically significant effect on technological innovation (coefficient = 0.27, p = 0.004). This suggests that financialization, by enhancing liquidity and improving access to financial resources, strengthens firms’ capacity for innovation. In contrast, the second model reveals that under financial constraints, the coefficient of financialization is negative and significant (coefficient = –0.54, p = 0.000). This finding aligns with the “substitution effect” in the financialization literature, whereby firms facing resource shortages divert their limited capital toward short term, highly liquid financial assets and neglect long term investments in research and development. However, the moderating role of financial constraints was found to be insignificant (coefficient = 0.10, p = 0.62), indicating that financial constraints did not significantly alter the relationship between financialization and innovation. Overall, the effect of financialization on innovation appears conditional and dependent on firms’ financial status. Conclusions: This study demonstrates that corporate financialization can serve as a driver of technological innovation under normal conditions, yet in the presence of financial constraints its positive impact diminishes and even turns negative. Although the moderating role of financial constraints was not statistically confirmed, its importance as a key contextual factor in analyzing the financialization–innovation nexus remains evident. Accordingly, firms are advised to mitigate financial constraints through capital structure adjustments, improved asset efficiency, and diversification of funding sources. Managers should also carefully assess internal financial capacity and financing risks during the financialization process to avoid adverse effects on innovation. At the macro level, policymakers can reinforce the link between financialization and innovation by designing supportive instruments and expanding modern financing mechanisms—such as venture capital funds and innovation bonds—to facilitate access to financial resources for innovative firms. Such measures can enhance productivity, foster sustainable growth, and strengthen firms’ competitiveness in both domestic and international markets.