The Impact of Enterprise Risk Management Effectiveness on Financial Sustainability of Saudi Listed Industrial Companies: The Mediating Role of Corporate Governance Quality

Abstract

This study examines the relationship between Enterprise Risk Management (ERM) effectiveness and financial sustainability of Saudi listed industrial companies, with corporate governance quality as a mediator. Despite growing recognition of ERM's importance, limited empirical evidence exists on how ERM effectiveness influences financial sustainability in emerging markets, particularly Saudi Arabia. Using panel data from 118 industrial firms (708 firm-year observations) over 2019–2024, fixed effects regression and mediation analysis were employed to test three hypotheses. The findings reveal that both ERM effectiveness (β = 0.286, p < 0.01) and corporate governance quality (β = 0.334, p < 0.01) positively influence financial sustainability. Importantly, corporate governance quality partially mediates the ERM-financial sustainability relationship (indirect effect = 0.118, 95% CI [0.048, 0.212]), with 29.37% of the total effect mediated. Results remain robust across alternative specifications and sample exclusions. The study contributes theoretically by integrating agency, resource-based, and stakeholder theories into a comprehensive framework, empirically demonstrating how governance mechanisms transmit the benefits of ERM to sustainability outcomes. Practically, it offers evidence-based guidance for managers, boards, and policymakers in Saudi Arabia to enhance financial sustainability through effective ERM and governance practices in support of Vision 2030 objectives. Methodologically, it develops robust measurement frameworks for ERM effectiveness, governance quality, and financial sustainability using quantitative analysis of secondary data from Saudi listed companies.