How does Financial Flexibility and Corporate Governance affect Firm Performance in Developed and Developing Countries?
DOI:
https://doi.org/10.5281/zenodo.14886294Keywords:
Financial Flexibility, Corporate Governance, Firm Performance, Developed Economies, Developing Economies, GMMAbstract
Purpose: This study aims at determining the role of financial flexibility and corporate governance on firm performance.
Design/Methodology/Approach: This Research uses the sample of 5783 manufacturing firms form three developed nations (UK, USA and Germany) and three developing nations (India, Pakistan, Bangladesh) over the period of 2000 to 2021. System GMM Panel Data technique has been applied for data analysis. Cash holding and debt holding are used as measure of financial flexibility. Board size and board independence are used as corporate governance indicators.
Findings: Results indicate that financial flexibility and board size and board independence positively influences performance of firms. Larger and more independent boards were related with more cautious decision-making on investment and financing choices. While, financial flexibility acts as a buffer during economic uncertainties and allows firms to seize growth opportunities, which enhances firm performance.
Implications/Originality/Value:This study suggests that firms should adopt a systematic approach to manage appropriate cash reserves. This comprises keeping sufficient liquidity to mitigate risks without limiting investment opportunities. The number of integrated research that systematically examine the ways in which these variables interact and affect ROA together employing panel GMM in context on both developing and developed nations is, nevertheless, quite low.
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