Investigating the inverse U-shaped relationship between Working Capital Financing and Profitability with emphasis on the role of Firm Size and Financial Leverage using the GMM method

Subject Areas : Journal of Investment Knowledge

rahim mohammadi ¹ , mohammadjavad shiekh ² , mohammad seyrani ³ , maryam mardaneh ⁴

1 - Mahabad Branch, Islamic Azad University, Mahabad, Iran
2 - Department of Management, Faculty of Humanities, Shahed University, Tehran, Iran
3 - Department of Accounting, Shahab Danesh University, Qom, Iran
4 - Faculty of Humanities, Azad University, Shahriar, Iran

Received: 2021-06-21 Accepted : 2021-06-28 Published : 2024-09-22

Keywords: Profitability, Working Capital Financing, Keyword: Company size, Generalized Torque (GMM), financial leverage,

Abstract :

The purpose of this study was to investigate the effect of firm size and financial leverage on the relationship between working capital financing and profitability in companies listed on the Tehran Stock Exchange using panel data during the period 2013-18, through the generalized torque method. (GMM). The variables of firm size and financial leverage are moderators whose effect on the relationship between working capital financing as an independent variable and profitability as a dependent variable is studied. The results of the study showed that there is an inverse U-shaped relationship between working capital financing and profitability. Also, the inverse U-shaped relationship between working capital financing and profitability is weaker in firms with small firms than in large firms. Also, the inverse U-shaped relationship between working capital financing and profitability in companies with high financial leverage is weaker than other companies. In other words, the relationship between profitability and financing through working capital is adjusted by the financial leverage and size, and this adjustment goes to a certain extent and is reversed from then on, which is the breaking point. The relation series is U-shaped.

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