Economic Sanctions and Liquidity Management in Companies

Objective: Liquidity is considered one of the important assets of economic units and enterprises, which plays a significant role in financial decisions. Organizations usually face imbalances in assets and liabilities that must be balanced. If an organization is not successful in balancing such a gap, there will be a liquidity risk and several adverse consequences such as the risk of inability to pay debts, the risk of reputation and credit, etc. will occur. Liquidity management includes preventing the inability to pay debts (bankruptcy), reducing the period of accounts receivable, increasing the amount of collections, and such cases. Investors, lenders and managers pay special attention to the financial statements of companies so that they can evaluate liquidity risk by using liquidity ratios, which is liquidity management.

On the other hand, working capital management is a liquidity management tool and one of the strategies for achieving desirable liquidity for companies, so that desirable liquidity for companies is maintained to the extent that they are not exposed to surplus or shortage of liquidity. In addition, economic sanctions increase inflation and disrupt money transfers and liquidity management. Accordingly, the purpose of this study is to investigate the impact of economic sanctions on liquidity management (based on operating capital factor), in listed companies in Tehran Stock Exchange.

Methods: To test the research hypotheses, the financial information of the 126 companies (1260 years-companies) accepted in Tehran Stock Exchange was used between 2011 and 2020, given the tightening of sanctions in 2011. The necessary data were extracted by referring to the financial statements and accompanying explanatory notes in the companies admitted to the Tehran Stock Exchange, available in the Codal, the website of the Tehran Stock Exchange Organization, and Rahvard Novin software. The final analysis of the collected data was done using Eviews and Stata econometric software. After measuring the variables of the research, multivariate linear regression analysis was used to test the research hypothesis.

Results: The experience of recent years shows that Iran has always struggled with the issue of economic sanctions. In terms of time, sanctions on Iran after the Islamic Revolution can be divided as follows: the initial period of the Islamic Revolution and hostage-taking (1979-1981); the period of Iraq's imposed war against Iran (1981-1988); Reconstruction period (1989-1992); Clinton era, bilateral restraint (1993-2001); After September 11, 2001 and after the resolutions of the Security Council. In the period from 2011 to 2014, the international sanctions against Iran caused a decrease of more than 17% in the real GDP of the country. In the period between 1390 and 1393, the most severe banking sanctions, including those of the United States, the United Nations, and the European Union, were imposed on Iranian banks and their SWIFT system was shut down. For this reason, studies investigating Iran's sanctions usually choose this period as the period of economic sanctions; Because it was unique in terms of intensity and depth and significantly overshadowed the economic and business indicators of the companies. The severity of the effects and consequences of the recent sanctions make it relevant to examine its impact on variables such as the company's liquidity.

The results of the statistical tests indicate that economic sanctions have a negative impact on the liquidity management of the company by imposing restrictions on the purchase, sale, GDP, technology and contraction of economic activities (inactivity in the economy). In an alternative practice, the research model was also fitted with clustered standard error (cluster panel). The results of the model estimation with the panel cluster method (sensitivity test) support the main results of the research and state that sanctions have a negative effect on the company's liquidity management.

Conclusion: Economic sanctions cause disruption in growth, financial flexibility, efficiency of economic activities, employment, profitability and consequently liquidity management by creating an unhealthy environment in the business environment and restrictions on doing business. Hence, companies perform worse in times of economic sanctions. Based on the results of the research and considering the negative effect of economic sanctions on liquidity management in companies, it is suggested that the statesmen and other authorities of the country pay more attention to the general policies of the economy in order to strengthen the economy of Iran. Regarding the impact of sanctions on liquidity management, there are two solutions to deal with it: a) Coordination of political and economic officials in the path of not sanctioning the country, which is of course bound to preserve the values of the society. b) The existence of alternative markets with which it is possible to exchange in the conditions of sanctions and the strengthening of any type of regional union and alternative market. The limitation of the current research is that the variable that is considered to measure sanctions is a virtual variable that depends on time and is defined in a period of time, and in this period, it cannot be confidently claimed that it is the only event that affects the macro economy of Iran. is sanctioned; Rather, other events, such as the deterioration of the balance sheets of banks and energy price reforms (implemented in 2010), etc., which have occurred in this period of time, can also affect the generalization of the results.