PURPOSE: This study examines whether managerial overinvestment is associated with corporate risk-taking, whether financial constraints alter this relationship in an emerging, bank-dependent capital market, and whether corporate risk-taking is associated with firm value.
DESIGN/METHODOLOGY/APPROACH: We use a balanced panel of 94 non-financial firms listed on the Tehran Stock Exchange over fourteen fiscal years (1389–1402 in the Iranian calendar, corresponding to 2010/11–2023/24), yielding 1,316 firm-year observations. Managerial overinvestment is measured as the positive component of firms’ investment deviation, corporate risk-taking as the three-year rolling standard deviation of annual stock returns, financial constraints as a standardized liquidity-based measure (the negative logarithm of one plus the current ratio), and firm value as Tobin’s Q. Two-way firm and year fixed-effects models with firm-clustered standard errors are estimated using one-year-lagged explanatory variables.
FINDINGS: In the risk-taking model, the coefficient on managerial overinvestment is negative but statistically insignificant, and neither the financial-constraint measure nor its interaction with overinvestment is significant. In the firm-value model, lagged corporate risk-taking is positively associated with Tobin’s Q, whereas managerial overinvestment is negatively associated with firm value.
RESEARCH IMPLICATIONS: Managerial investment behavior and the financing environment should be considered jointly when examining corporate risk-taking and valuation in emerging markets. The market consequences of excessive investment may be visible in firm value even when the direct risk-taking channel is not statistically strong.
ORIGINALITY/VALUE: The study provides an integrated panel analysis that links managerial overinvestment, financial constraints, market-based corporate risk-taking, and firm value for firms listed on the Tehran Stock Exchange.