IDEAS home Printed from https://ideas.repec.org/a/eme/jaarpp/jaar-07-2023-0192.html

The influence of financial flexibility on firm performance: the moderating effects of investment efficiency and investment scale

Author

Listed:
  • Wei Wu
  • Chau Le
  • Yulu Shi
  • Fadi Alkaraan

Abstract

Purpose - Financial flexibility and investment efficiency are of vital importance in strategic choices at boardrooms, particularly in post-crisis recovery strategies. This study examines the moderating effects of investment efficiency and investment scale on the relationship between financial flexibility and firm performance. Design/methodology/approach - The authors use sample of 10,755 US-listed firms over the period 2010–2021 to examine the relationships between investment scale, investment efficiency, financial flexibility and firm performance. Particular attention is paid to overinvestment and underinvestment. Findings - Findings of this study reveal that financial flexibility mitigates investment inefficiency through reducing overinvestment. Financial flexibility contributes to boost a firm’s accounting and market performance. Additionally, investment efficiency and investment scale have moderating effects on the relationship between financial flexibility and firm performance. However, the influence of investment efficiency is greater than the influence of investment scale. Finally, the authors find that the direct and indirect effects of financial flexibility are stronger on market performance than accounting performance, implying that market is more sensitive to corporate financial policies. Research limitations/implications - Findings of this study have implications for scholars, decision-makers policymakers, investors and other stakeholders. Practical implications - This study has its own limitations due to the sample selection issues, country context and the research model adopted by this study. Originality/value - The novel contribution to the extant literature is incorporating the influence of investment scale and investment efficiency into the relationship between financial flexibility and firm performance.

Suggested Citation

  • Wei Wu & Chau Le & Yulu Shi & Fadi Alkaraan, 2024. "The influence of financial flexibility on firm performance: the moderating effects of investment efficiency and investment scale," Journal of Applied Accounting Research, Emerald Group Publishing Limited, vol. 25(5), pages 1183-1202, March.
    • Handle: RePEc:eme:jaarpp:jaar-07-2023-0192
    DOI: 10.1108/JAAR-07-2023-0192
    as

    Download full text from publisher

    File URL: https://www.emerald.com/insight/content/doi/10.1108/JAAR-07-2023-0192/full/html?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://www.emerald.com/insight/content/doi/10.1108/JAAR-07-2023-0192/full/pdf?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1108/JAAR-07-2023-0192?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Fan, Yali & Wang, Xiuzhong & Li, Zhuoran & Wu, Wei, 2025. "From harm to Hope: How green innovation alleviates environmental injustice triggered by non-green innovation," International Review of Economics & Finance, Elsevier, vol. 101(C).
    2. Zhou, Zhongsheng & Zhang, Jingyao, 2025. "Manufacturing enterprise digital transformation, financial flexibility, and financial risk—Evidence from China," International Review of Financial Analysis, Elsevier, vol. 104(PA).
    3. Arles Rodríguez & Mercedes Gaitán-Angulo & Melva Inés Gómez-Caicedo & Paula Robayo-Acuña & Iván Ricardo Ruíz-Castro, 2025. "Innovameter: Agent-based modeling of innovation determinants in American and European countries," PLOS ONE, Public Library of Science, vol. 20(1), pages 1-26, January.
    4. Zhou, Fuyuan & Chen, Hanlong & Tang, Shiyu & Lee, Chuan & Lin, Chin-Tsai, 2025. "Integrating ESG into financial distress models: The role of financial report quality and innovation in the Chinese market," International Review of Economics & Finance, Elsevier, vol. 101(C).
    5. Kang, Haijun & Chi, Shangping & Wang, Xiuzhong & Li, Zhuoran, 2025. "How does the toxic and sustainable index influence on corporate performance? A comparison analysis before and after pandemic," International Review of Economics & Finance, Elsevier, vol. 100(C).
    6. Li, Junming & Zhang, Guoqing & Gong, Zhengqi & Ma, Xiaona, 2025. "The synergistic effects of financial development and industrial structure on urban decarbonization," International Review of Economics & Finance, Elsevier, vol. 103(C).
    7. Han, Zhenfu & Tang, Shiyu & Li, Zhuoran, 2025. "Design innovation and firm performance: Evidence from patent subtype analysis," International Review of Economics & Finance, Elsevier, vol. 102(C).
    8. Fan, Yali & Wang, Ruofei & Alkaraan, Fadi & Wu, Wei, 2025. "Decoding greenwashing practices toward sustainability: The synergistic influence of governance structure and policy-derive rhetorical strategies," Energy Economics, Elsevier, vol. 148(C).
    9. Anh, Dao Le Trang & Quang, Nguyen Thi Thieu & Anh, Nguyen Tuan, 2024. "Investment decision and efficiency: Global insights on manufacturing firms amidst energy uncertainties," Energy Economics, Elsevier, vol. 137(C).
    10. Li, Lin & Du, Le, 2025. "Location strategy of emerging economy multinational enterprise," International Review of Economics & Finance, Elsevier, vol. 101(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:jaarpp:jaar-07-2023-0192. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.