The Effect of Managerial Ability on relationship between Risk Taking Ability of a Firm and its Financial Performance in Pakistan

Abstract

The purpose of this research was to address this vacuum in the literature by examining the moderating effect of management competence on business performance and managerial efficiency. The aim of this research is to examine whether the level of managerial skill in a company affects the correlation between the willingness to take risks and the company's financial success. Method: a sample of 100 businesses listed on the KSE 100 Index in Pakistan from 2014-2020 have been considered to examine the influence of managerial skill in light of the fact that risk management is essential to improving company performance. Stata was used to do data envelopment analysis, and then the findings were analysed using random effect panel regression to determine a company's efficiency. The results indicate that there is a positive correlation between managers' risk-taking abilities and the success of their companies, as those with greater abilities are better equipped to exploit opportunities while keeping their organizations' risks to a minimum. This study fills in a lot of blanks in the literature by explaining how a company may be affected by the skills of its managers. Furthermore, this research tackles the existing inconsistent literature and bridges the previous literature gap between risk-taking behaviour and firm performance by including management competence as a component in developing successful risk mitigation plan.