Enhancing Investors’ Decision-Making through Financial Risk Management: Role of Corporate Governance and Financial Communication Transparency

Financial communication transparency is a foundation of modern corporate governance, as it enhances stakeholder trust, reduces information asymmetry, and ensures market efficiency. Within the investor decision-making perspective, a lack of transparent communication restricts access to reliable information, which leads to uncertainty that can result in poor investment choices that could weaken firm performance. To address this issue, the present study aimed to investigate the mediating role of financial risk management in the relationship between corporate governance mechanisms and financial communication transparency. The researchers utilized the secondary annual reports data from the large-scale manufacturing companies in Saudi Arabia covering the period 2015 to 2024. The direct effect regression results show that board size, board independence, board diversity, and audit committee effectiveness significantly enhance financial communication transparency, while CEO duality and ownership structure negatively affect financial communication transparency. Mediating analysis further demonstrated that financial risk management partially mediates the positive impacts of board size, diversity, independence, and audit committees on FCT, while fully mediating the negative effects of CEO duality and ownership structure on financial communication transparency. This suggests that effective risk management systems absorb governance weaknesses and reinforce transparency, which is important to increase investors' positive decision-making in their investment. The study contributed theoretically by extending agency, stakeholder, and resource dependence theories and provides practical implications for boards, regulators, and policymakers, emphasizing the importance of robust governance and financial risk management frameworks to achieve sustainable transparency and stakeholder confidence in their investment decisions.

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