The Influence of Financial Flexibility on Firms' Performance: Environmental Uncertainty as a Moderator

ABSTRACT : Financial flexibility has been posited as a critical determinant of resilience and firm performance. Financially flexible companies have more cash on hand and can raise capital cheaply and more effectively to support new development possibilities and improve performance. However, the moderating role of environmental uncertainty in shaping this relationship remains underexplored, especially in fragile economies such as Iraq. In Iraq, firms face acute performance disparities rooted in systemic challenges. Recent analyses highlight that Iraqi firms with limited financial flexibility exhibit disproportionately lower profitability and survival rates compared to regional peers. Yet, existing research predominantly attributes these gaps to corruption or security risks, neglecting the moderating role of environmental uncertainty in maximising such constraints. This article investigates how environmental uncertainty moderates the influence of financial flexibility on firm performance in Iraq. A survey-based method was used to collect the data from 191 firms in Iraq. Non-probability sampling through the convenience sampling technique was used. The data was analysed using variance-based SEM, known as the SmartPLS. This study revealed that financial flexibility has a significant positive relationship with firm performance in terms of financial performance and non-financial performance. Furthermore, It was found that environmental uncertainty significantly and positively moderates the relationship between financial flexibility and firm performance in terms of financial performance and non-financial performance. The implications of the study have been discussed, and further research suggestions have been presented.