Iranian Journal of Accounting, Auditing and Finance

Iranian Journal of Accounting, Auditing and Finance

The Effect of Working Capital Management on Cost Stickiness Considering the Mediating Role of Financial Constraints

Document Type : Original Article

Authors
Mahdi Kazempour Barough
Hamzeh Didar
Farzad Ghayour
Department of Accounting, Faculty of Economics and Management, Urmia University, Iran
10.22067/ijaaf.2026.47673.1598
Abstract
This study examined the effect of working capital management (WCM) policies on cost stickiness, providing the first direct empirical quantification of whether and how financial constraints mediate this relationship in a major emerging market. Building on established trade-off, agency, and adjustment-cost theories, we hypothesize that aggressive WCM primarily reduces cost stickiness for efficiency, but that financial constraints partially offset this gain. Using 1,848 firm-year observations from 132 Tehran Stock Exchange (TSE)–listed firms (2010–2023), we estimated multiple regression and a covariance-based SEM. More aggressive WCM is associated with lower cost stickiness. Critically, the mediation analysis indicates partial mediation; aggressive WCM is linked to higher financial constraints, and these constraints, in turn, amplify cost stickiness, thereby quantifying the trade-off between direct efficiency gains and indirect financial rigidities. Our findings establish an empirical foundation for advising managers to adopt aggressive WCM strategies only when coupled with strategies to mitigate financial constraint risk. Policymakers, particularly in SME contexts, should design targeted liquidity provision mechanisms to unlock the full cost-flexibility potential of WCM.
Keywords
Cost Stickiness
Financial Constraints
Working Capital Management
Subjects
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