Corporate Governance, Risk-Taking, Institutional Quality and Financial Performance: Evidence from Developed and Emerging Markets Using PLS-SEM
DOI:
https://doi.org/10.70670/sra.v4i2.2061Keywords:
Corporate Governance; Risk-Taking; Financial Performance; Institutional Quality; PLS-SEM; SmartPLSAbstract
This paper will discuss how financial performance is affected by corporate governance and risk-taking, and how the institutional quality will moderate. The study uses the Partial Least Squares Structural Equation Modeling by using SmartPLS 3.0 and regression analysis by using SPSS, using secondary data of 100 publicly listed firms operating in the developed and emerging markets over the six years period between 2015 and 2020. Board size, CEO duality, and shareholder rights measure corporate governance, and risk-taking is represented by leverage, research and development spending, and investment in volatile assets. Financial performance is assessed in terms of the returns on assets, returns on equity, and the earnings before interest and taxes, whereas institutional quality is measured through regulatory quality, rule of law, and control of corruption. The results indicate that corporate governance positively impacts financial performance, and excessive risk-taking has a negative impact on firm performance. The findings also suggest that institutional quality enhances the association between corporate governance and financial performance. The research adds to the existing body of literature on corporate governance by demonstrating that the effectiveness of a given governance mechanism at a particular time depends on whether such a mechanism is supported by a robust institutional environment. The results provide valuable insights to policymakers, managers, and investors who aim to enhance the governance practices and risk-management approaches.
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