The Effect of Economic Policy Uncertainty on Financial Stability by Considering the Interactive Effect of Defensive Strategy

Subject Areas :

samira barati manesh ¹ , masod foladi ^{2 *}

1 - Department of Accounting, Shahin Shahr Branch, Islamic Azad University, Shahin Shahr, Esfahan, Iran
2 - Department of Accounting, Shahin Shahr Branch, Islamic Azad University, Shahin Shahr, Esfahan, Iran

Received: 2023-08-01 Accepted : 2024-07-29 Published : 2025-07-07

Keywords: Financial Stability&quot, , &quot, Economic Policy Uncertainty&quot, , &quot, Business Strategy&quot, , &quot, Defensive Strategy,

Abstract :

Abstract The ability to facilitate and improve economic processes, manage risks and neutralize shocks is called financial stability. So far, researchers investigated and proved the effect of various factors such as equity, total assets, net profit, financing, etc., most of which are internal factors of the company, on financial stability. However, there is another important extra-organizational risk originating from the lack of stability and completeness of the economic laws approved by governments and can overshadow the production performance and financial stability of the firms; and so far, it has not been considered by Iranian researchers, the issue is the economic policy uncertainty of the government and the strategy of firms to face such conditions. The purpose of the current research is to investigate the effect of economic policy uncertainty on financial stability by considering the interactive effect of defensive strategy. This research is applied in terms of purpose and descriptive-correlation in terms of method. Using the combined data of 128 companies admitted to the Tehran Stock Exchange during the years 2010 to 2019 and with the help of multiple linear regression, this study finds that the economic policy uncertainty has a negative and significant effect on the financial stability of the firms. Also, the results of the second hypothesis of the research shows that the adoption of a defensive strategy by firms weakens the negative relationship between the economic policy uncertainty and the financial stability of the firms. Keywords: Financial Stability, Economic Policy Uncertainty, Business Strategy, Defensive Strategy