The moderating role of education and R&D expenses on the relationship between labor investment efficiency and operating cash flow volatility: Evidence from listed company on TSE (Tehran Stock Exchange)

Purpose: Cash flows significantly impact various factors, including labor investment efficiency. Beladi et al. (2021) show that companies facing cash flow risks are more likely to increase current labor investment to reduce future financing costs. Delays in labor investment expose firms to additional risks associated with uncertain cash flows, potentially reducing their ability to finance ongoing projects (Boyle & Guthrie, 2003). However, given the lack of sufficient research on this subject in Iran, this study aims to address this gap. Specifically, it investigates the moderating role of employee training expenses and research and development (R&D) costs on the relationship between labor investment efficiency and operating cash flow volatility among companies listed on the Tehran Stock Exchange (TSE). This research is practical in its objectives and uses a post-event methodology.
Method: The statistical population consists of all companies listed on the Tehran Stock Exchange. A systematic elimination method was applied, resulting in a sample of 116 companies (580 firm-year observations) analyzed over the period 2017–2021. Data were collected using library research methods and extracted from the TSE information system (Codal) and Rahvard Novin software. Excel was used for organizing data, while SPSS and EViews were employed for hypothesis testing and analysis using panel data models and multiple linear regression. This study examines how education and R&D expenses moderate the relationship between labor investment efficiency and operating cash flow volatility.
Findings: The findings reveal that operating cash flow volatility significantly influences labor investment efficiency. Employee training expenses also significantly moderate the relationship between labor investment efficiency and operating cash flow volatility. Similarly, R&D expenses significantly moderate this relationship. The results show that companies with higher operating cash flow volatility are more likely to adopt measures to improve labor investment efficiency to mitigate risks associated with cash flow uncertainties.
Conclusion: The greater the operating cash flow volatility, the higher the labor investment efficiency. Companies facing cash flow risks are more likely to increase current labor investments to avoid high financing costs in the future. Fluctuations in cash flows increase a company’s risk and, consequently, affect the risk levels of companies with inefficient labor investments. These findings align with the studies by Beladi et al. (2021) and Habib and Ranasinghe (2022), which argue that companies encountering cash flow risks are inclined to increase workforce investments to mitigate future financial risks. Additionally, the second hypothesis indicates that lower employee training costs amplify the positive relationship between labor investment efficiency and operating cash flow volatility. This suggests that companies with high cash flow risks cautiously invest in their workforce and reduce training costs to compel management to enhance workforce investment efficiency, ultimately increasing shareholder value and reducing future financing costs. Similarly, the third hypothesis confirms that R&D expenses moderate the relationship between labor investment efficiency and cash flow volatility. In cash flow risk scenarios, managers attempt to maximize the value derived from R&D expenditures through effective workforce investment, as R&D-related investments are highly sensitive to cash flow fluctuations.