Investigating the relationship between Financialization and Long-Term Use of Short-Term Debt

The purpose of this study is to investigate the relationship between financialization and financing maturity mismatch concerning the debt issues faced by Iranian firms, aiming to provide insights for managers and policymakers. The statistical sample comprises 143 active firms listed on the Tehran Stock Exchange over a ten-year period, from 2013 to 2022. The regression method was employed to estimate the models and test the research hypotheses. The findings indicate that there is no significant relationship between financialization and long-term use of short-term debts. However, when firms were categorized into large and small, distinct results emerged. In large firms (unlike their smaller counterparts) financialization appears to have a positive effect on the long-term use of short-term debt. Additionally, financial constraints do not significantly influence the propensity of firms to use of short-term debts and do not serve as an incentive for increased willingness among these firms to use short-term debts in the long term. Furthermore, Financialization leads to a decrease in the amount of investment in productive assets, and firms that are more inclined to finance use less internal financing. While previous studies on maturity mismatch have highlighted factors such as external regulations, the macroeconomic environment, and internal corporate governance, this study addresses the gap in research concerning the discrepancy between corporate debt and investment horizons. It provides empirical evidence at the firm level and investigates the underlying mechanisms through which financialization influences the long-term use of short-term debt.