Corporate Governance, Financial Sustainability and Risk Management as drivers of Financial Performance: An Empirical Analysis of Non-Financial Firms of Pakistan
Keywords:
Corporate Governance, Financial Sustainability, Risk Management and Financial Performance.Abstract
Purpose: The research study is trying to investigate the impact of corporate governance, financial sustainability and risk management on the non-financial firms of Pakistan. The research study examined the overall impact of the three independent variables that were corporate governance, financial sustainability and risk management on financial performance of 315 non-financial firms of Pakistan from the period of 2014-2019. The aim of the research was to determine a strong framework that would allow companies to avoid corporate scandals by ensuring proper corporate governance mechanisms are used, financial sustainability is ensured and risk management practices are used to ensure safety of the firms.
Methodology: The balanced panel of 315 non-financial firms of Pakistan were considered in the research and multiple regression was applied firstly by using Ordinary Least Squares (OLS), Random Effects Model (REM) and Fixed Effects Model FEM) and Hausman specification test was applied to determine the best estimator. Corporate governance was properly measured by focusing on CEO independence, CEO-duality, board independence, board expertise and board meetings, For Financial sustainability leverage was focused to ensure that firms did not rely too much on debt and there was a proper capital structure that was followed by these firms. Furthermore, Risk Management was measured by focusing on the auditor independence, auditor expertise and Big-Four auditors.
Findings: All the important diagnostic tests were applied to ensure that multivariate analysis could be applied. Risk Management plays the most vital role in enhancing the financial performance then corporate governance is crucial for improving financial performance and finally financial sustainability plays a significant role in enhancing the financial performance of non-financial firms of Pakistan.
Implications: The Pakistan Stock Exchange (PSX) is aligning with the global standards by improving the competitiveness and resilience of Pakistan based companies from any sort of global shocks. The structured boards and expert audit committees are not constraining the agency costs but they are allowing the firms to properly leverage the internal knowledge, networks and expertise for achieving the sustained profitability. Regulators and boards should focus on improving the governance codes that help in maintaining optimal leverage which will promote sustainable growth in corporate sector of Pakistan.
Keywords: Corporate Governance, Financial Sustainability, Risk Management and Financial Performance.
