Interactive Effects of Cash Flow Risk on Corporate Financial Stability: Evidence from the Tehran Stock Exchange with Emphasis on Earnings Management and Abnormal Compensation
Keywords:
cash flow risk, bankruptcy, accrual earnings management, abnormal compensationAbstract
This study aims to examine the effect of cash flow risk on corporate bankruptcy and to analyze the moderating roles of accrual-based earnings management and abnormal compensation in this relationship. This applied quantitative study used panel data from 125 firms listed on the Tehran Stock Exchange over the period 2013–2023. The data were analyzed using random-effects panel regression. Prior to model estimation, unit root tests (Levin, Lin & Chu), serial correlation tests (Breusch–Godfrey), and heteroskedasticity tests (Breusch–Pagan–Godfrey) were conducted. Robust standard errors were applied to correct for autocorrelation and heteroskedasticity. Bankruptcy was measured using the Altman Z-Score model, and independent, moderating, and control variables were incorporated into the regression framework. The results indicate that cash flow risk has a negative and significant impact on financial health, increasing the likelihood of bankruptcy (β = −1.733, p < 0.001). Accrual-based earnings management significantly moderates this relationship by intensifying the adverse effect of cash flow risk (β = −3.561, p = 0.040). Conversely, abnormal compensation plays a positive moderating role, mitigating the negative impact of cash flow risk on bankruptcy (β = 0.002, p = 0.015). The explanatory power of the models was high, with R² values ranging from 0.73 to 0.86. The findings demonstrate that cash flow risk is a critical determinant of corporate financial instability, and its impact is significantly influenced by earnings management practices and compensation mechanisms; therefore, improving cash flow management and financial reporting quality is essential for reducing bankruptcy risk.
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Copyright (c) 2025 Efat Mazidabadi (Author); Negar Khosravipour (Corresponding author); Mohammad Ali Bidari (Author)
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