Navigating the Financial Stability: Unraveling Impact of Risk Management Committees with Moderation of Firm Size in the Pakistan Business Landscape

Abstract

The purpose of this study is to empirically examine how risk management committees, taking into account variables like size, independence, and frequency of meetings, affect the possibility of financial distress in Pakistan, an emerging market. Furthermore, it aims to determine whether firm size moderates the relationship between risk management committees and financial distress.

The fixed effects panel regression approach is used in the examination of a sample of 944 firm-year observations from 2015 to 2022. The Hausman test is used to validate the fixed effect model’s applicability after panel data analysis techniques are executed. The main conclusions of the study make available insightful information on the Pakistani context.

In certain, it validates that reducing financial distress is certainly and significantly impacted by the risk management committee’s size. Financial problems are less expected to occur in larger committees. The study also shows that the relationship between committee independence and financial distress is moderated by firm size.

According to the researcher’s knowledge, this is the pioneer study that checks the impact of risk management committees on financial distress and also the moderating role of firm size in Pakistan. These new results suggest that firms with different sized risk management committees can draw in investors by reducing asymmetric information, which would eventually reduce the probability of financial distress. However, risk management committees and firm size are significant factors in lowering the probability of financial distress.