Macroeconomic Conditions, Economic Sanctions and Corporate Financial Fragility

Rezagholizadeh, Mahdieh; Maleki, Maryam

doi:10.48308/jep.2026.245338.1286

Macroeconomic Conditions, Economic Sanctions and Corporate Financial Fragility

Articles in Press

Document Type : Original Article

Authors

Mahdieh Rezagholizadeh ¹

Maryam Maleki ²

¹ Associate Professor of Economics, Faculty of Economics and Administrative Science, University of Mazandaran, Babolsar, Iran.

² MSc in Economics, Faculty of Economics and Administrative Science, University of Mazandaran, Babolsar, Iran.

10.48308/jep.2026.245338.1286

Abstract

Using annual data for 22 Tehran Stock Exchange–listed automotive and auto-parts firms from 2011 to 2023, this study examines how firm-level characteristics and macroeconomic conditions are associated with corporate financial fragility. Corporate financial fragility is measured using the Altman Z-Score, with lower values indicating weaker financial conditions and greater vulnerability to financial distress. To account for the dynamic nature of firms’ financial conditions, unobserved heterogeneity, and potential endogeneity, the empirical model is estimated using the two-step System Generalized Method of Moments (System GMM).
The results indicate significant persistence in firms’ financial conditions. Financial leverage, inflation, and depreciation of the Iranian rial are significantly associated with lower Z-Scores and greater financial fragility, whereas no statistically significant independent association is found for firm size. Capital market conditions are positively associated with the Z-Score, although the relationship is statistically significant only at the 10% level. The two periods of intensified economic sanctions exhibit different results: no statistically significant independent association is found for the first sanctions period, while the second is significantly associated with lower Z-Scores and greater financial fragility. These findings indicate that corporate financial vulnerability in Iran’s automotive industry is associated with both firms’ financial structures and the broader macroeconomic and political-economy environment. The mechanism analysis further shows that the adverse association between the second sanctions period and financial conditions is stronger among firms with higher leverage exposure, suggesting that balance-sheet vulnerability may amplify the financial pressures associated with intensified sanctions. The robustness analysis based on a restricted instrument specification confirms that the main findings are not sensitive to alternative instrument structures.
The results suggest that prudent leverage management and greater macroeconomic stability, particularly with respect to inflation and exchange-rate conditions, can contribute to strengthening firms’ financial resilience. The findings also indicate that assessments of corporate vulnerability in Iran should account for changes in the sanctions environment alongside conventional firm-specific and macroeconomic factors.

Keywords

Corporate Financial Fragility

Altman Z-Score

Macroeconomic Conditions

Economic Sanctions

Firm-Specific Factors

System GMM

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