Financial Sustainability, Board Expertise and Firms’ Resilience: Insight From Saudi Listed Companies

Abstract

This study explores the moderating effect of board financial expertise on the relationship between financial sustainability and firms’ resilience. The research sampled 164 firms from 2017 to 2023 and analysed the data using the fixed effects panel method. It was found that financial sustainability has a positive effect on firms’ resilience, supporting stakeholder and signalling theories. The moderation model reveals that board financial expertise moderates this relationship. The results suggest that firms with strong financial systems are better equipped to manage stock return volatility and other market shocks. Additionally, the findings suggest that board expertise may enhance board monitoring and counsel, enabling firms to effectively manage risks and curtail adversities for long-term value creation. The outcome may equip managers and policymakers with new strategies for enhancing corporate stability and promoting sustainable growth in the face of volatile market conditions. The moderation outcome reinforces the agency and resource dependency views that board financial expertise is a crucial mechanism in firms’ governance. Specifically, the results indicate that strong monitoring and counsel can facilitate long-term value creation, enabling firms to achieve financial sustainability. Consistent with stakeholder and signalling theories, financial sustainability sends a positive signal to corporate stakeholders about a firm’s prospects, raising investors’ confidence, which leads to lower stock return volatility and builds resilience.