Abstract
Objective: The present study aims to empirically investigate the relationship between stock return volatility and financial distress, focusing on the moderating role of managerial ability in companies listed on the Tehran Stock Exchange (TSE).
Methodology: This study is applied in terms of objective and descriptive-correlational in terms of methodology. The statistical population consists of firms listed on the TSE, from which a sample of 147 companies was selected for the period from 2015 to 2024 (1394 to 1403 SH) using the systematic elimination method. Managerial ability was measured using the model developed by Demerjian et al. (2012), and financial distress was assessed using Altman’s modified Z-score model. Hypothesis testing was conducted using multiple regression analysis with panel data.
Results: The results of testing the first hypothesis indicate a significant positive relationship between stock return volatility and financial distress, which confirms that market volatility reflects fundamental risks and a lack of financial sustainability. However, the findings for the second hypothesis reveal that managerial ability does not significantly moderate the impact of stock return volatility on financial distress within the context of the Iranian capital market.
Conclusion: This finding suggests that in developing economies, the dominance of macroeconomic shocks, monetary policies, and systematic risks weakens the protective buffer of managerial ability when confronting market turbulence. Consequently, while stock return volatility serves as a critical warning indicator for identifying financial distress, managerial ability alone is not a comprehensive solution to neutralize the consequences of this risk in the volatile economic environment of Iran.