International Journal of Nonlinear Analysis and Applications

Presenting a model and optimizing the non-linear relationship between debt volume and profit quality

Articles in Press

Document Type : Research Paper

Authors

Department of Accounting, Central Tehran Branch, Islamic Azad University, Tehran, Iran

Abstract

Increasing the quality of profit can have significant economic consequences, including enhanced investment efficiency. Although strong and stable theories support this relationship, there is very little empirical evidence for this claim. By increasing reporting and the quality of information provided, companies can bring their investments closer to the efficiency limit. This research aims to investigate whether the relationship between debt and profit quality exhibits a nonlinear relationship. If this relationship is non-linear, is the relationship related to long-term or short-term debts? This research has been carried out in the framework of inductive-inductive arguments. In this research, library and field methods were used to collect information. The theoretical bases and research carried out were used as a library basis. The statistical population of this research includes all the companies listed on the Tehran Stock Exchange during the financial periods of 2013-2022. According to the systematic elimination method, 217 final samples were selected. According to research findings, there is a positive relationship between low levels of debt and profit quality, but for higher levels of debt, the relationship is negative. This suggests that at high levels of debt, it is preferable to reduce the quality of profits so that they do not suffer losses due to breach of contracts. Also, according to the McNichols model, the results show a statistically significant relationship between the volume of debts and the quality of profits, and the first hypothesis is confirmed. Also, because the probability value of the total debts and the square of the total debts variables is more than 0.05. The quality of profit has a significant and non-linear effect on the volume of short-term debt in companies listed on the Tehran Stock Exchange. That is, no U-shaped or inverted U-shaped effect has been seen in this relationship; the relationship between the quality of profit and the amount of short-term debt is not a direct linear relationship, so that an increase (decrease) in ownership will not change the amount of short-term debt. Also, there is a significant and positive relationship between accounting profit management and short-term debt maturity. In fact, managers have a greater incentive to manage earnings by using short-term debt. This result is consistent with the debt contract hypothesis and financial helplessness theory. Therefore, according to the McNichols model, the non-linear relationship between the volume of debts and the quality of profit is also related to short-term debts and not only long-term debts. In this way, based on this model, the second hypothesis is rejected.

Keywords

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International Journal of Nonlinear Analysis and Applications

Articles in Press, Corrected Proof
Available Online from 02 December 2025
  • Receive Date: 21 April 2024
  • Accept Date: 19 June 2024