Investigating the Nonlinear Relationship between Inefficient Investment and Financing through Debt and Loans
Keywords:
Debt financing, loan financing, inefficient investmentAbstract
This study aims to investigate the nonlinear relationship between inefficient investment and financing through debt and loans in companies listed on the Tehran Stock Exchange. This applied research used a descriptive–analytical design. The statistical population comprised all firms listed on the Tehran Stock Exchange between 2014 and 2023, of which 143 companies were selected through systematic elimination sampling. Data were extracted from firms’ financial statements and analyzed using a panel data regression model and the Generalized Method of Moments (GMM) in EViews10 software. The dependent variable was inefficient investment, while independent variables included the debt-to-asset ratio, short-term loan-to-asset ratio, and long-term loan-to-asset ratio. The results indicated a significant nonlinear U-shaped relationship between the debt-to-asset ratio and inefficient investment. At lower levels of debt, an increase in leverage reduces investment inefficiency, while at higher levels, it increases inefficiency. A similar U-shaped nonlinear relationship was found between the short-term loan-to-asset ratio and inefficient investment. However, no significant nonlinear relationship was observed between long-term loans and investment inefficiency. Diagnostic tests confirmed the model’s validity and the absence of multicollinearity among variables. The findings highlight that debt structure exerts a nonlinear influence on investment efficiency, emphasizing the need for firms to maintain an optimal balance of leverage. A moderate use of debt enhances investment performance, while excessive leverage leads to financial distress and inefficient investments. Long-term loans showed no significant effect, possibly due to their extended repayment terms and flexibility. These results provide valuable insights for financial managers and policymakers aiming to enhance investment efficiency and corporate sustainability.
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Copyright (c) 2025 Abbas Alimardani Karafsi (Author); Arezoo Khosravani (Corresponding author); Reza Ziyari, Arefeh Mohaghegh (Author)
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
