The Effect of Capital Structure and Profitability on Current Debts Solvency with Emphasis on the Life Cycle Stages of Firms

تأثیر سودآوری و ساختار سرمایه بر توان پرداخت بدهی‌های جاری با تأکید بر نقش تعدیلی مراحل چرخه عمر شرکت‌ها

Zeynab Mehtari and Farzad Zare Bidaki
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Zeynab Mehtari: Assistant Prof of Accounting, Shiraz University, Shiraz, Iran
Farzad Zare Bidaki: Master of Science in Accounting, Shiraz University, Shiraz, Iran

Journal of Accounting Advances (JAA), 2026, vol. 17, issue 2, 503-547

Abstract: In today’s competitive business environment, the ability of firms to optimize capital structure and manage current liabilities is crucial for financial stability and sustainability. Current liabilities management serves as a key indicator of financial health, mitigating liquidity risks and potential bankruptcy, while capital structure directly affects cost of capital, risk, and returns. Profitability further strengthens cash flow, enhancing a company’s capacity to meet short-term obligations. This study investigates the effects of profitability and capital structure on current liabilities management, considering the moderating role of the corporate life cycle. The research sample includes 160 companies listed on the Tehran Stock Exchange over 2015-2024 selected using a screening-based sampling. Multiple linear regression models were employed, alongside diagnostic tests for homoscedasticity, residual normality, and autocorrelation. Findings reveal that profitability and capital structure significantly influence the current debt solvency, but the direction and magnitude of these effects vary across life cycle stages. Notably, during the growth phase, the impact is reversed compared to the birth, maturity, and decline stages. These results highlight the importance for financial managers to continuously assess life cycle stages and adjust capital structure and debt management strategies accordingly, providing valuable guidance for informed decision-making on liquidity and financial policy.

Keywords: Liquidity; Profitability; Capital Structure; Current Debt Solvency; Company Life Cycle (search for similar items in EconPapers)
JEL-codes: D92 G30 G32 G35 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ris:jaccad:023595

DOI: 10.22099/jaa.2026.54435.2552

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