Good corporate governance is often associated with effective boards of directors capable of reducing firm risk through safer financial policies. Additionally, ESG (Environmental, Social, and Governance) performance can strengthen the impact of board effectiveness on reducing firm risk, as it encourages companies to act in the interests of stakeholders. This article discusses the empirical findings on these premises within the Southeast Asian context. This article source on Scholar of Airlangga University.
Research Methodology
This study used 380 observations from 76 non-financial companies in the Philippines, Malaysia, and Singapore during the 2015–2019 period. The data were analyzed using the fixed-effects panel data method. This approach allows researchers to control for unobserved variables that might influence the study’s outcomes.
Research Findings
The Impact of Board Effectiveness on Firm Risk
The results show that board effectiveness has a marginally significant effect in reducing firm risk. Effective boards are capable of making more prudent policies and avoiding high-risk financial decisions, ultimately lowering the risks faced by the company.
The Moderating Role of ESG Performance
Moreover, the study found that when board effectiveness interacts with ESG performance, the moderating role of ESG can strengthen the board’s influence in reducing firm risk. This means that companies with good ESG performance and effective boards are more capable of reducing risks compared to companies relying on only one of these factors.
Implications of the Study
For Policymakers
The findings of this study have significant implications for policymakers. They need to encourage companies to improve governance and ESG performance as part of their corporate strategy to reduce risk. Policies that support sustainability and good governance will help create a more stable and safe business environment.
For Investors
Investors can also benefit from these findings by incorporating ESG factors and board effectiveness into their risk analysis. Companies with good governance and high ESG performance tend to be more stable and have lower risks, making them more attractive investment options.
For Corporate Executives and Board Members
For corporate executives and board members, this study emphasizes the importance of integrating ESG into corporate strategy and ensuring the board functions effectively. Continuous monitoring of ESG performance and corporate policies can help reduce risks and enhance corporate sustainability.
Conclusion
This study provides empirical evidence on the relationship between board effectiveness, ESG performance, and firm risk in Southeast Asia. The findings indicate that board effectiveness and ESG performance play crucial roles in reducing firm risk. Moreover, the integration of these two factors can provide additional benefits in creating more stable and sustainable companies. For policymakers, investors, and corporate executives, the results of this study highlight the importance of good governance and ESG performance in risk management strategies.
Link Journal : https://scholar.unair.ac.id/en/publications/board-effectiveness-and-firm-risk-the-moderating-role-of-esg-perf