Corporate Risk-Taking Behaviour: Do Internal Governance Mechanisms Matter in Saudi Arabia?

Abstract

Purpose: This study investigates the multi-dimensional nature of corporate risk-taking by examining how governance mechanisms exert differing pressures on accounting-based stability versus market-perceived volatility in the Saudi context, as the biggest emerging market in the Middle East. Moreover, the research uses accounting conservatism as a critical moderating variable and the sample is partitioned into high-conservative and low-conservative groups. Design/methodology/approach: The research analyzed data from 69 non-financial listed firms from 2017 to 2024 using four statistical models. Corporate risk-taking values have been captured from both accounting-based and market-based perspectives. Moreover, managerial, institutional, and concentration ownership have been used to capture ownership structure. However, board size, independence, and CEO power have been used to capture board structure. Findings: The research findings reported three main results: (1) Ownership structures have an asymmetric impact on accounting-based corporate risk-taking, as managerial and institutional ownership take a U-shaped curve, but ownership concentration has a positive impact. Moreover, from market-based corporate risk-taking, managerial and institutional ownership have a negative impact, but ownership concentration has a positive impact. (2) Board structures have an asymmetric impact on accounting-based corporate risk-taking, as managerial and institutional ownership have a negative impact, but ownership concentration has an inverted U-shaped impact. Moreover, from market-based corporate risk-taking, managerial and institutional ownership have no significant impact, but ownership concentration has a negative impact. (3) Accounting conservatism can change the nexus between ownership structure, board structure, and corporate risk behavior. Research limitations/implications: The research has many implications. For policymakers, the results discovered the role of ownership and board structures in shaping corporate risk-taking behavior in the Saudi context. Moreover, we have provided evidence-based guidance for governance reforms and firm-level decision-making. Moreover, the results can be incorporated by investors and creditors into their risk assessment frameworks, improving portfolio allocation and credit evaluation. Originality/value: The research captured corporate risk-taking behavior in the Saudi context from two perspectives at the same time. Likewise, it provides new empirical evidence that accounting conservatism can have a role in risky behavior.