analysis of regime dependent effects of financial leverage on firms Financial Vulnerability

Subject Areas : Stock Exchange

evaz kenarkoohi ¹ , Sayed Yahya Abtahi ² , hamid khajeh mahmoodabadi ³ , gholamreza askarzadeh ⁴

1 - Department of finance, Yazd branch, Islamic Azad University, Yazd. Iran.
2 - Department of finance, Yazd branch, Islamic Azad University, Yazd. Iran.
3 - Department of finance, Yazd branch, Islamic Azad University, Yazd. Iran
4 - Department of finance, Yazd branch, Islamic Azad University, Yazd. Iran

Received: 2022-11-01 Accepted : 2023-01-11 Published : 2023-12-22

Keywords: Financial Leverage, threshold models, Financial Vulnerability, regime dependent effects,

Abstract :

Financial leverage is predicted as one of the main factors in dealing with the cause of firms' financial vulnerability. In this article, the effect of financial leverage on the financial vulnerability of firms has been studied by using the the regime-dependent approach through the estimation of a threshold model. The estimation results of a two-threshold model in a sample including data related to 145 non-financial and non-banking firms admitted to the Tehran Stock Exchange during 2010-2019 show that the effect of financial leverage on the vulnerability of firms has a vulnerability regime-dependent effects. Moreover, such an effect is even asymmetric because the negative effect of financial leverage on the vulnerability of firms in low vulnerability regimes is greater than their positive effect in high vulnerability regimes. Based on this, in using debt instruments in financing, it is necessary for firms to consider their initial situation in terms of financial vulnerability, because their financial health and performance in using financial leverage depends on the their vulnerability regime

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