The Role of Financial Flexibility as a Mediating Variable in the Relationship betweenInvestment Diversification and Risk-Adjusted Return: An Applied Study on a Sampleof Industrial Companies Listed in the Iraq Stock Exchange

This research aimed to study the role of financial flexibility as a mediating variable in the relationship between investment diversification and risk-adjusted returns for a sample of industrial companies listed on the Iraq Stock Exchange during the period (2015–2025). The research adopted the descriptive-analytical approach due to its suitability to the nature of the research and its variables. The research sample consisted of (10) industrial companies listed on the Iraq Stock Exchange: Baghdad for Soft Drinks, National for Metal Industries, Iraqi for Dates Processing and Marketing, Al-Kindi for Vaccine Production, Modern Chemical Industries, General for Food Industries, Al-Hilal for Industries, Babylon for Animal Production, General for Leather Industries, and Erbil for Food Industries. Investment diversification was measured using the Herfindahl–Hirschman Index (HHI)، financial flexibility was measured using a composite index including the cash ratio, equity-to-debt ratio, and dividend payout ratio, while risk-adjusted returns were measured using the Sharpe Ratio. The results showed that the average financial flexibility was (0.5359), the average investment diversification was (0.6133), and the average risk-adjusted return was (0.3885). The mediation test results also indicated that financial flexibility plays a partial mediating role in the relationship between investment diversification and risk-adjusted returns. The research recommended that the management of Iraqi industrial companies listed on the Iraq Stock Exchange should pay attention to enhancing their financial flexibility and employ it strategically to improve risk-adjusted returns and enhance the competitiveness of these companies in a volatile business environment.