Risk Management in Corporate Governance Framework

Hania Rehman,Muhammad Zia Ul Haq,Jinsoo Hwang,Muhammad Ramzan,Kyoung-Bae Kim

doi:10.3390/su13095015

Hania Rehman, Muhammad Zia Ul Haq + Show 3 more

Open Access

https://doi.org/10.3390/su13095015

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Journal: Sustainability	Publication Date: Apr 29, 2021
Citations: 7	License type: CC BY 4.0

Affiliation: Air University, Sejong University, Dong-A University

Abstract

There is a scarcity of literature involving studies about the effect of risk management on the relationship between corporate governance and a firm’s financial performance, especially in emerging markets. The study fills this gap and adds to the existing literature by investigating whether risk management acts as a mediator between corporate governance and the firm’s financial performance. This study found that risk management partially mediates the relationship between board size and financial performance. Our results further indicate that risk management acts as a partial mediator between foreign ownership and financial performance.

Highlights

Corporate governance has become a subject of global importance in the aftermath of corporate scandals, such as Enron, and its significance has further increased after the global financial crisis of 2007–2008
We found that managerial ownership (MO) has a significant positive effect on the earnings per share (EPS)
This finding is in line with earlier studies and supports the suggestion from the components of the agency theory, which states that managerial ownership mitigates the manager–owner agency problem [5]

Summary

Introduction

Corporate governance has become a subject of global importance in the aftermath of corporate scandals, such as Enron, and its significance has further increased after the global financial crisis of 2007–2008. It is even more significant and relevant in emerging markets, such as Pakistan, which ranks poorly on the Corruption Perceptions Index (CPI) and the Worldwide Governance Indicators (WGI). We take risk management as a mediating variable to examine whether risk plays a significant role in influencing the relationship between corporate governance and a firm’s financial performance. This study adds to the existing literature by investigating the mediating role of risk management between corporate governance and a firm’s financial performance in Pakistan.

Background and Theoretical Framework

Data and Methodology

Results and Discussion

Conclusions and Policy Implication

Methods