Analysis of Working Capital Financing Strategy and Firm Performance in Iran with Emphasis on Macroeconomic Variables: A GMM and Spline Approach
Subject Areas : Economic
Meysam Kaviani
1
,
seyedfakhrodin fakhrehoseyni
2
,
Zahra Shoroui
3
1 - Assistant Pro, Department of mangment, Economic and Accounting, Ka.C, Islamic Azad University, Karaj, Iran
2 - Associate Pro, Department of mangment, Economic and Accounting, Ka.C, Islamic Azad University, Karaj, Iran
3 - Department of Management, Economic and Accounting, Ka.C, Islamic Azad University, Karaj, Iran
Keywords: Working Capital Financing Financial, Performance, Macroeconomic Factors.,
Abstract :
This study examines the impact of working capital financing (WCF) Strategy on the financial performance of firms listed on the Tehran Stock Exchange, while also analyzing the moderating role of key macroeconomic variables including gross domestic product (GDP), inflation rate, and interest rate. To this end, panel data for firms over the period 2015–2024 were collected and analyzed using the Generalized Method of Moments (GMM). In addition, a spline regression approach was employed to identify potential nonlinear patterns and determine the optimal level of working capital financing. The results indicate that improving working capital financing generally has a positive and significant effect on financial performance; however, this effect diminishes at higher levels of working capital and eventually turns negative. This finding reveals a nonlinear, inverted U-shaped relationship between working capital financing and financial performance. Furthermore, the findings suggest that the effectiveness of such financing is greater under low economic growth and low inflation, whereas its impact weakens during periods of high economic growth, high inflation, or elevated interest rates. The simultaneous interactive effect of GDP and inflation was not statistically significant in the linear interaction model. Overall, the results underscore the importance of optimizing working capital structure to enhance firms’ financial performance, highlighting that financial managers should align their financing strategies with prevailing macroeconomic conditions. By providing empirical evidence from Iran’s economy, this study emphasizes the need to consider nonlinear and condition-dependent effects in financial analyses and offers insights that can guide policymaking in the areas of liquidity and working capital management.
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