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

Document Type : Original Article

Authors
Mohammad javad sheikh 1
rahim mohammadi 2
mohammad seyrani 3
maryam mardaneh 4
1 Associate Professor, Department of Management, Faculty of Humanities, Shahed University, Tehran, Iran
2 Master of Accounting, Faculty of Humanities, Azad University, Mahabad, Iran
3 Assistant Professor of Accounting, Shahab Danesh University, Qom, Iran
4 Master of Accounting, Faculty of Humanities, Azad University, Shahriar, Iran
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.
Keywords
Keyword: Company size
Financial Leverage
Working Capital Financing
Profitability
Generalized Torque (GMM)
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