Effect Of Corporate Governance Mechanisms Research Articles

Governance mediation in the era of disruptive technologies: unveiling new perspectives on the risk of material misstatements

Purpose This study aims to examine the mediating effects of corporate governance mechanisms like the board of directors on the association between disruptive technology adoption by audit clients and the risk of material misstatements, including inherent risk and control risk. In particular, the authors study the mediating effects of board characteristics such as board size, independence and gender diversity. Design/methodology/approach Based on a sample of 100 audit clients listed on the FTSE 100 from 2015 to 2021, this study uses structural equation modelling to test the research objectives. Findings The findings indicate a significant and negative association between disruptive technology adoption by audit clients and inherent risk. However, there is no significant evidence observed for control risk. The utilisation of disruptive technology by the audit client has a significant impact on the board characteristics, resulting in an increase in board size, greater independence and gender diversity. The authors also find strong evidence that board independence mediates the association between disruptive technology usage and both inherent risk and control risk. In addition, board size and gender exhibit distinct and differential mediating effects on the association and across the two types of risks. Research limitations/implications The study reveals that the significant role of using disruptive technology by audit clients in reducing the risk of material misstatements is closely associated with the board of directors, which makes audit clients place greater emphasis on the construction of effective corporate governance. Practical implications This study offers essential primary evidence that can assist policymakers and standard setters in formulating guidance and recommendations for board size, independence and gender quotas, ensuring the enhancement of effective governance and supporting the future of audit within the next generation of digital services. Social implications With respect to relevant stakeholders, it is imperative for audit clients to recognise that corporate governance represents a fundamental means of addressing the ramifications of applying disruptive technology, particularly as they pertain to inherent and control risks within the audit client. Originality/value This study contributes to the existing literature by investigating the joint impact of corporate governance and the utilisation of disruptive technology by audit clients on inherent risk and control risk, which has not been investigated by previous research.

Corporate Governance Mechanisms and Financial Performance: An Analysis of Listed Companies in Brazil

Purpose: The aim of the study was to investigate the corporate governance mechanisms and financial performance: an analysis of listed companies in Brazil.
 Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries.
 Findings: The analysis of listed companies in Brazil found that strong corporate governance practices are associated with improved financial performance. Factors such as board independence, transparency, and shareholder rights positively influence profitability, liquidity, and market valuation. This highlights the vital role of effective corporate governance mechanisms in fostering investor confidence and driving sustainable financial success in Brazil.
 Unique Contribution to Theory, Practice and Policy: Agency theory, stakeholder theory & resource dependency theory may be used to anchor future studies on the corporate governance mechanisms and financial performance: an analysis of listed companies in Brazil. By emphasizing the pivotal role of board independence, transparency, and shareholder engagement, the study provides tangible guidance on governance practices that can be effectively implemented to bolster financial performance. Policymakers tasked with overseeing the corporate governance landscape in Brazil

Effects of Audit Committee on Fraudulent Financial Reporting Among Listed Firms in Kenya.

Fraudulent financial reporting poses significant risks to the integrity of financial markets, investor confidence, and the overall economy. As a result, effective corporate governance mechanisms are crucial in mitigating the occurrence of fraudulent activities. The audit committee, as a key component of corporate governance, plays a vital role in overseeing financial reporting and providing assurance on the reliability of financial statements. This paper aims to explore the effects of audit committee characteristics on fraudulent financial reporting of listed firms in Kenya. Specifically, the study assessed the effect of Audit Committee; gender, financial expertise, size and independence on fraudulent financial reporting. The study was anchored on the Fraud Pentagon theory. Explanatory research design and longitudinal research design was employed in this study where secondary panel data was obtained through content analysis from audited financial statements spanning from 2012 to 2021. The study targeted listed firms in Kenya during the study period and only firms that met the inclusion and exclusion criteria were retained. After applying the inclusion/exclusion criteria only 40 firms formed the study population. Data was analyzed using descriptive and inferential statistics with the significance of each independent variable being tested at 95% confidence level. The findings show that Gender (β1 = -.1154, p=.000.05) and Financial expertise (β2 = -.200, p=.000.05), Size (β3 = -.1457, p=.001.05), and Independence (β4 = -.1818, p=.000.05) had negative and significant effect on fraudulent financial reporting on firms in Kenya. Thus, the study concluded that audit committee characteristics such as gender variability, audit committee size, audit committee financial expertise and audit committee independence significantly influence fraudulent financial reported among listed firms in Kenya. Based on the findings, the study recommends enhancing the effectiveness of the audit committee in preventing fraudulent financial reporting, organizations should strive for gender diversity within the committee. This can be achieved by actively seeking and appointing qualified female candidates to the audit committee. Promoting diversity ensures a range of perspectives and experiences, leading to more robust discussions, increased scrutiny of financial reporting practices, and improved decision-making. Secondly, Organizations should prioritize the independence of the audit committee by ensuring that committee members are free from any conflicts of interest and have no direct ties to management. Additionally, Organizations should carefully consider the size of the audit committee to optimize its effectiveness in addressing fraudulent financial reporting. Lastly, Organizations should establish mechanisms for continuous monitoring and evaluation of the audit committee's performance. Regular assessments of the committee's effectiveness in detecting and preventing fraudulent financial reporting can help identify areas for improvement.

The Moderating Effect of Corporate Governance Mechanisms on the Nexus between Sustainability Reporting and the Value of Nigerian-Listed Manufacturing Companies

The study investigates the Moderating Effect of Corporate Governance on the Nexus between Sustainability Reporting (SR) on the Value of listed Manufacturing Companies in Nigeria, precisely the effect of Board Size (BS) and Board Independence (BI) on the nexus subsisting between SR and FV. Secondary data for 36 sampled companies was obtained from the Nigerian Exchange Group (NGX) database for eleven (11) years, 2012–2022, which was analysed using descriptive statistics and a two-step GMM system. Findings therefrom revealed that SR exhibits a positive and significant impact on EVA. At the same time, it was found not to influence Tobin's Q. Further revealed from the analysis was that none of the CG mechanisms introduced had a moderating effect on either of the FV proxies used. The study recommended that management provide clear and concise information on how sustainability initiatives align with the company's financial goals and contribute to value creation over time. These companies should invest in energy efficiency and resource management systems, develop sustainable products and services that meet market demand and align with sustainability goals to reduce their cost of capital. Also, the Financial Reporting Council of Nigeria (FRC) should make a provision requiring companies to appoint a significant number of the board with relevant knowledge in sustainability issues and that there is the need for them to review the Nigerian Code of Corporate Governance, specifically board composition, to include sustainability committees.
  

Moderating effect of capital structure on the relationship between corporate governance mechanisms and firm value: Evidence from India

While corporate misconducts highlight the need for effective corporate governance mechanisms, the degree to which such mechanisms impact firm value is unsettled in literature. We argue that board-centered mechanisms may appear impeded in isolation, as firm capital structure moderates the relationship between corporate governance mechanisms and firm value. We employ fixed effect panel models and GMM estimations on a sample of 306 non-financial Indian firms for 2013–2022 to uncover the standalone effects of capital structure and corporate governance mechanisms, along with their interaction effects, on firm value. Findings identify direct as well as moderating impacts of leverage on firm value for high-levered firms and large board size firms. However, for low-levered firms we find a direct but not moderating impact of leverage. There is no impact of leverage for small board size firms.

Examining the Influence of Corporate Governance on Working Capital Management: Insights from Malaysian Public Listed Companies in Selangor

Corporate governance and working capital management (WCM) are treated as essential subjects in financial management. Many researchers have studied the influence of corporate governance, but only a few of them have connected it with WCM efficiency. Particularly in Malaysia, there has been little concentration given to the relationship between corporate governance attributes and the WCM of the companies. Therefore, the present study intends to analyse the impact of corporate governance represented by CEO tenure, CEO Duality, Board size and Audit Committee on WCM represented by the current ratio of 35 Selangor-based companies which are listed under the FTSE Bursa Malaysia Top 100 Index.The results from this study show that CEO tenure has a significant negative impact on the current ratio, while CEO duality has a positive impact on the current ratio. Moreover, board size has no significant impact on the current ratio, and the audit committee has a significant positive impact on the current ratio. These findings imply that effective corporate governance mechanisms can significantly affect WCM. The result is expected to enable the owners of the firms to improve their corporate governance practices to enhance WCM efficiency and, furthermore, contribute to the enhancement of the profitability of the firms and maximise shareholders' wealth indirectly. Additionally, the findings from this study can also be a guide for good corporate governance' criteria that significantly affect the efficiency of WCM to be practised by other companies, including SMEs and other organisations.

The Moderating Role of Corporate Governance in the Relationship between Leverage and Firm Value: Evidence from the Korean Market

This study examines the moderating function of corporate governance (CG) to the relationship between leverage and firm value (FV) using Korean market data. The study employs ordinary least-squares panel data regressions and two methods to manage endogeneity problems. The findings show a meaningful negative relationship between leverage and FV. This relationship, however, disappears, when the interaction variable of leverage × CG is included in the econometric model. These results indicate that an effective CG mechanism may lessen the probability of either the entrenched management-decision-making behavior or the agency costs of debt and, therefore, the negative effect of debt to FV diminishes. Moreover, our data show that the relationship between leverage and FV becomes positive, even though insignificant, for firms with a high level of CG, whereas it stays significantly negative for firms with a low level of CG. We also find that leverage for firms with a high level of CG is lower than those firms with a low level of CG. These additional findings support our conclusion of the moderating role of CG, which also influences the firms’ risk, leverage, and FV. The authors recommend the implementation of a robust CG plan to decrease the information asymmetry and the agency leverage problem.

Effect of Corporate Governance Mechanisms on Cost of Debt of Listed Consumer Goods Companies in Nigeria

This study examined effect of corporate governance mechanisms on cost of debt of listed consumer goods companies in Nigeria. Specifically, the study examined the effect of board size, board gender diversity, board independence, board meeting and audit committee size on cost of debt. Ex-post facto design was employed as data were extracted from published audited annual financial reports of 16 sampled listed consumer goods companies on the Nigerian Exchange Group for a period of ten (10) years covering 2012-2021. The data collected were processed and subjected to series of tests to ascertain the data validity and reliability for analysis; these include; correlational test, variance inflation factor and normality test. Regression post estimation was conducted using heteroskedasticity test. Panel data analysis was employed and multiple regression analysis was conducted and the Ordinary Least Square (OLS) model was found most appropriate to test the formulated hypotheses. The study found that Board side (BS) has significantly reduces cost of debt; board gender diversity (BD) insignificantly increase cost of debt; board meeting (BI) significantly reduces cost of debt; board meeting (BM) significantly reduces cost of debt and audit committee size (ACS) significantly reduces cost of debt of consumer goods companies listed on the NGX Group. Therefore, the study recommends amongst others that the board should comprise more experienced directors with widely varied experience in all aspects of the business. Specifically, the board should be made up more directors with sufficient level of financial literacy and professionalism which they will come to bear in ensuring that finances derived from either debt or equity sources are rightly managed.

IFRS adoption, information asymmetry and stock liquidity: Moderating effects of corporate governance mechanisms

The purpose of this paper is to test the impact of International Financial Reporting Standards (IFRS) adoption on information asymmetry, transaction transparency, and stock market liquidity. Furthermore, this study examined the direct and moderating effect of corporate governance devices on this relationship. We apply ordinary least squares (OLS) regression to examine changes in stock liquidity for French-listed firms between the pre-IFRS and the post-IFRS period. We show that IFRS adoption is well-perceived by financial statement users. Following Boubaker et al. (2019), R. and Firoz (2022), Bansal (2023), and Agrawal and Chakraverty (2023), we found that these standards have a positive impact on stock liquidity and a negative impact on information asymmetry. In addition, audit quality has a decisive role in improving information quality. However, contrary to expectations, the independent members of the board of directors do not exercise their role of control and monitoring efficiently. We conclude that the reporting process is influenced by firm-level characteristics, and we contribute to the literature by enhancing discussion on the debate related to the benefits of IFRS adoption. Our findings can be of interest to regulatory bodies and policymakers by providing a better understanding of the factors that influence stock liquidity and decision-making.

Bank climate change initiatives, ownership structures, and corporate governance mechanisms: Evidence from emerging economies

AbstractMotivated by the growing attention on climate change acceleration, we examine the interrelationships among corporate governance disclosure index, bank ownership structures, and bank climate change initiatives through the lens of a multi‐theoretical framework. We conduct a fixed‐effects and dynamic two‐step system generalized method of moments models over an extensive dataset. Based on panel data of 220 banks (2,785 observations) from 16 Sub‐Saharan Africa emerging economies between 2007 and 2022, the study observes that banks with higher levels of corporate governance disclosure index engage in more climate change initiatives. The study shows that ownership by institutional and foreign investors is associated with more bank climate change initiatives, while government ownership reduces climate change initiatives. Further, we document that director ownership has no impact on climate change initiatives. The study documents that the association between bank ownership structures and bank climate change initiatives is positively moderated by the extent of the corporate governance disclosure index. This moderating impact improves for banks with high corporate governance mechanisms. Finally, we show that the bank ownership structures‐climate change initiatives linkage and the moderating effect of corporate governance mechanisms on this nexus vary significantly across banks' operating periods. We identify corporate governance disclosure as the potential channel through which bank ownership structures and climate change initiatives are interlinked. Our findings call for banks to adopt and implement good governance disclosure to improve climate change initiatives. The findings make significant theoretical and regulatory contributions.

Role of committees in bank valuation: Evidence from an emerging market

The purpose of this study is to examine the effect of corporate governance mechanisms on bank performance in general and the effect of board-constituted committees on bank performance in particular. Primarily, two questions are addressed in the context of the banking sector of India. First, does corporate governance mechanisms reduce the quantum of non-performing assets (NPAs)? Second, does the internal committee affect bank performance? Hence, this paper determines whether independent directors strengthen corporate boards and whether committees affect bank performance. The panel data ordinary least square regression analysis is used for this study. We also use logistic regression models for various committees to find their relationship with bank performance and NPAs. Tobin’s Q is used as proxy for bank performance. Independent variables are board size (BSIZE), proportion of independent directors on the board (PERIND), number of board meetings per year (BMEET), size of the audit committee (AUC), and two measures of the bank business (asset size and loan), and one control variable is time. We use financial and corporate governance data from 2005 to 2018, the study finds that independent directors play a major role on the board. It finds a positive and significant relationship between board independence and bank performance. The performance also increases with the increase in board size but after a point, the curve declines forming and an inverted U-shaped curve is formed. The mandatory internal committees have a crucial role to play, which is demonstrated by their effect on the reduction of NPAs. The significance of a well-functioning board and internal committees in discharging their fiduciary duties is highlighted in this study. An internal committee comprising a majority of independent directors is found to positively affect the performance of banks. They can help managers disburse good-quality loans and keep a check on risk-laden ventures. 

Revisiting the relationship between corporate governance mechanisms and ESG disclosures in Saudi Arabia

Purpose This paper aims to examine the effects of corporate governance mechanisms (board chairman independence, board independent director meeting attendance, audit committee size and audit committee meetings) on the environmental, social and governance (ESG) and its individual component disclosures of listed firms in Saudi Arabia. Design/methodology/approach The study used unbalanced panel data obtained from the Bloomberg data set over 11 years, from 2010 to 2020. Findings The findings indicate that board chairman independence (BCI) and audit committee size (AC size) have a significant negative and positive association with ESG disclosure, respectively. However, the results show that board independent director meeting attendance (BIMA) and audit committee meetings (AC meetings) do not significantly influence ESG disclosure. Regarding the individual dimensions (components), the results show that only BIMA has a significant negative association with environmental disclosure. Besides, only BCI and AC meetings have a significant positive association with social disclosure. Also, only BIMA and AC size have a significant positive and negative relationship with governance disclosure, respectively. Research limitations/implications The study used a sample of 29 listed companies in Saudi Arabia. Each firm has at least four years of ESG disclosures. Besides, the paper considered only four corporate governance attributes, comprising two each for the board and audit committee. Practical implications The results provide insights to regulators, boards of directors, managers and investors to enhance ESG and its components’ reporting toward the sustainable operations and better performance of Saudi firms. Originality/value This study is among the few that provide empirical evidence on how some essential corporate governance attributes that have not been given adequate attention by prior studies (board chairman independence, board independent directors’ meeting attendance, audit committee size and audit committee meetings) influence not only ESG reporting as a whole but also its individual dimensions (components).

The Effect of Corporate Governance Mechanisms and Banking Performance in Indonesia

The company's main goal is to grow and develop well. To be able to grow, company management must be able to improve company performance which is usually measured by profitability. There are several factors that influence profitability, including corporate governance mechanisms. This research aims to examine the influence of corporate governance mechanisms on banking performance. In this research, corporate governance mechanisms are measured by institutional ownership, managerial ownership, independent board of commissioners, size of the board of directors and size of the audit committee, while banking performance is measured by Return On Assets (ROA). The population in this research is the banking industry listed on the Indonesia Stock Exchange, totaling 46 banks and all of them were taken as samples. The observation period is 4 years (2019 – 2022) with quarterly data. To test the hypothesis, use multiple regression analysis with a significance requirement of 0.05. The data was processed using the SPSS version 25 program. The results of this study show that institutional ownership and the board of directors have no effect on financial performance, while managerial ownership has a significant effect but with a negative coefficient. Meanwhile, independent commissioners and audit committee size have a positive effect on performance.

Cash Flow Management and Firm Performance: Moderating Effect of Corporate Governance Mechanism in the Era of Disruption in Emerging Economy

The moderating effect of corporate governance mechanism on the relationship between cash flow management and performance of listed manufacturing firms in the era of disruption in Nigeria was empirically investigated in this study. Operating, financing, and investing activities were used as proxies for cash flow management. Net assets per share (NAPS) was used to measure firm performance while board independence was used as a proxy for the corporate governance mechanism (moderating variable). Panel least squares regression model operated with E-View 12 was utilized to perform the statistical test of parameter estimates, and six hypotheses were formulated to direct the investigation. Ex Post Facto design was used, and the data for the study was collected from the published annual financial reports and accounts of companies listed on the Nigerian Exchange Group (NGX) under the consumer goods sector, industrial goods sector, and oil and gas sector. The results of the study show that operating activities (OA) significantly affect firm performance (NAPS) at 5% significant level. Furthermore, it was discovered that, at 1% significant level, financing activities (FA) has a positive and significant effect on firm performance, whereas investing activities (FA) has the same effect on firm performance in Nigeria. Also, it was noted that, at 1-5% significant level, corporate governance mechanism (board independence) moderated the effect of cash flow management on firm performance in Nigeria. Thus, the study concludes that in this disruptive era in Nigeria, firms’ performance is determined by their ability to manage their cash flow effectively. Moreover, strong corporate governance practices ensure the success of the company. In light of the study's findings, the study recommends that businesses should review their approaches to managing cash flow so that they can produce enough cash to cover both their operating and investing needs. On the other hand, net cash flow from financing activities ought to be preserved because it has a substantial impact on the financial results of the Nigerian listed companies.

Corporate governance meets corporate social responsibility: evidence from Latin America

PropósitoEste estudio tiene como objetivo examinar el efecto de los mecanismos de gobierno corporativo en la responsabilidad social en América Latina.Diseño/metodología/enfoqueLas hipótesis se probaron utilizando una muestra de 371 empresas con sede en 8 países de América Latina, lo que resultó en 4.823 observaciones.HallazgosLos resultados muestran que directorios más independientes, con mayor representación femenina y la presencia de un comité de sustentabilidad llevan a las empresas a comportarse de manera más ética. Los hallazgos indican que los mecanismos de gobierno corporativo juegan un papel importante para que las empresas realicen acciones de responsabilidad social.OriginalidadEste estudio amplía el alcance de la aplicación de la teoría de la agencia y la visión basada en los recursos al demostrar que la junta directiva es una composición única y que las organizaciones deben entender cómo equilibrar los miembros externos e internos en sus juntas para lograr un mayor impacto social. y desempeño ambiental.Implicaciones prácticasLos gobiernos pueden usar estos hallazgos para redactar regulaciones que alienten a las empresas latinoamericanas a divulgar más información no financiera y apoyar una composición de directorio más diversa. Nuestra evidencia muestra que la calidad de la gobernanza nacional juega un papel clave en tiempos de crisis al fomentar un comportamiento más responsable por parte de las empresas.

Moderating effect of audit quality: the case of political connection, executive compensation and tax aggressiveness

The study examines the moderating effect of audit quality on relationship between political connection, executive compensation on tax aggressive. The secondary data used for this study in the form of financial statements of 56 financial sector firms listed on Indonesian stock exchange from 2018 to 2021. Moderated Regression Analysis used for analyzed data. Result indicate, that political connection positively affected tax aggressive. These result support the view of grabbing hand theory, where a bureaucrat who occupies a position in the company will be controlled by the corporation because they get welfare. Furthermore, we find that executive compensation negatively affected tax aggressive. The result of moderation analysis show that audit quality can weaken the relationship of executive compensation on tax aggressive. These findings of this research suggest that audit quality is an effective corporate governance mechanism, thereby protecting users against the opportunism and fraud by managers. This show that corporate governance is able to mitigating information asymmetry that exist in the relation between agent and principals.

Corporate Governance Mechanism and Shareholders Wealth Maximization in Quoted Commercial Banks in Nigeria

This study examined the effect of corporate governance mechanism and shareholders wealth maximization of quoted commercial banks in Nigeria. The purpose is to examine how corporate governance variables affect shareholders wealth of quoted commercial banks in Nigeria. Panel data was sourced from financial statement of the quoted commercial banks from 2011 to 2020. Return on equity and return on assets were modeled as a function of board size, board composition, board independence and directors shareholdings. Panel data Ordinary least square method was used as data analysis technique. The study found that 65.7 and 70 percent of return on equity and return on assets were explained by variation in corporate governance variables. Beta coefficient of the variables found that board size and board composition have positive but no significant effect on return on equity of the quoted commercial banks while board independent and directors equity holding have negative effect on the return on equity of the quoted commercial banks. The study found that the independent variables have positive effect on return on assets of the quoted commercial banks except directors’ equity holding. From the findings, the study concludes that corporate governance variables have greater effect on return on assets than return on equity of the quoted commercial banks. From the findings, the study recommends the all corporate governance code from the regulatory authorities should well complied with by the management of the commercial banks. Directors equity holding should be reduce and its objectives integrated with the management objective of maximizing shareholders wealth

Pengaruh Mekanisme Tata Kelola Perusahaan terhadap Kinerja Keuangan Perusahaan: Studi Empiris pada Perusahaan Non Consumer Cyclicals yang Terdaftar di Bursa Efek Indonesia Periode 2019-2021

Purpose: This study examines the effects of corporate governance mechanisms on financial performance. The population in this study is all consumer non-cyclical companies listed on the Indonesia Stock Exchange in 2019-2021). Methodology/approach: The variables used in this study were the company's financial performance as the dependent variable, the Influence of Corporate Governance Mechanisms as independent variables, and the Audit Committee and independent Board of Commissioners as control variables. The sampling technique used was the purposive sampling method and 126 data samples were obtained. The analytical method used is Descriptive Statistical Analysis, Classical Assumption Test, Correlation Test, Multiple Linear Regression Test, and Hypothesis Test Results: The results show that the influence of the Corporate Governance Mechanism with the Proxy of the Audit Committee has no effect on financial performance. The Independent Board of Commissioners has a positive effect on financial performance. In addition to the control variable, Firm Size does not affect financial performance, and Board Size does not affect financial performance.

Effect of Corporate Governance Mechanisms on Going Concern Likelihood of Listed Deposit Money Banks in Nigeria

Effect of Corporate Governance Mechanisms on Going Concern Likelihood of Listed Deposit Money Banks in Nigeria

The moderating effects of corporate governance and investment efficiency on the nexus between financial flexibility and firm performance

Purpose Financial flexibility, investment efficiency and effective corporate governance mechanisms have been issues of concern to stakeholders. Yet, little empirical evidence on the combined moderating effects investment efficiency and corporate governance mechanisms on the nexus between financial flexibility and firm performance. This study aims to address this gap and extend the extant literature by examining the moderating effects of corporate governance and investment efficiency on the nexus between financial flexibility and financial performance. Design/methodology/approach The empirical study is based on progression analysis using a sample of 13,865 US listed companies selected from BoardEx (WRDS) for the period (2010–2022) with 89,198 firm-year observations. Findings Findings of this study indicate that financial flexibility improves firm value as well as accounting performance. Furthermore, the results reveal that both investment efficiency and corporate governance moderate the effect of financial flexibility on firm performance. The authors complement and extend the literature on the optimal investment strategies domain by showing that the combined impact of corporate governance mechanisms and investment efficiency strengthens the nexus between financial flexibility and firm performance. Research limitations/implications Key limitations of this study due to the characteristics of the sample selection: country-specific context and proxies used by this study. Practical implications Findings of this study have managerial and theoretical implications for firms’ boardrooms, institutional and individual investors, regulators, academics and other stakeholders regarding behavioural aspects of investment decision-making. Originality/value The authors’ novel contribution to the extant literature is articulated by the conceptual framework underlying this study and by the new evidence regarding exploring the combined effect of corporate governance mechanisms on nexus between financial flexibility and companies’ performance.