Several theories support the relationship between financial sustainability and firm resilience. Stakeholder theory argues that corporations should prioritize the interests of all stakeholders (Barriga and Escandon‐Barbosa, 2024; Freeman, 1994). The stakeholder perspective suggests that firms that invest in financial sustainability strategies demonstrate to their shareholders lower risk, leading to improved investor confidence and less stock price volatility (Adeyemi, 2019; Uche et al., 2016; Wu et al., 2024). Thus, the theory concludes that effective risk management may balance the interests of stakeholders, ensuring stability for consistent growth. Signalling theory posits that organizations engage in certain actions or behaviours to convey credible information to the external environment (Friske et al., 2023; Ross, 1977). The theory suggests that firms engage in specific actions or make certain choices to signal their quality, competence, or prospects to investors, customers, or suppliers (Baek et al., 2016; Ozo and Arun, 2019). These signals can include financial indicators and strategic decisions. Financial sustainability can positively influence firm resilience through the lens of signalling theory because sustainable performance sends positive signals to external stakeholders (Aydoğmuş et al., 2022; Yilmaz et al., 2022). These signals convey the company’s commitment to accountability, ethical behaviour, and long-term sustainability. Investors, creditors, and other stakeholders interpret these signals as indicators of the company’s quality, integrity, and ability to withstand challenges (Nwoke, 2019; Yeung and Lento, 2018). As a result, a company can attract capital, build trust with stakeholders, and establish a reputation for responsible and resilient business practices. These factors may instil confidence and reduce uncertainty, enhancing the company’s ability to navigate disruptions and maintain resilience in the face of adversity. The stakeholder and signalling frameworks support the relationship between financial sustainability and firm resilience. Companies committed to addressing stakeholders’ interests are more likely to have higher goodwill and competitive advantage, enabling them to achieve long-term growth and financial sustainability. This financial sustainability conveys a positive signal to the external environment about a firm’s image, boosting investors’ confidence, lowering stock return volatility and building resilience.

The agency and resource dependency theories provide a foundation for the moderating effect of board financial expertise. According to the agency theory, the separation between ownership and control may lead to agency conflicts in an organization (Jensen and Meckling, 1976; Wu et al., 2024). This theory argues that a board of directors should be constituted to monitor policy decisions. Within this context, it has been emphasised that corporate boards may monitor more effectively when they are composed of many financial experts (Alcaide-Ruiz and Bravo-Urquiza, 2024; Fama and Jensen, 1983; Sani, 2021). These experts have advanced knowledge of financial matters and investment strategies. Therefore, financial policies may be more robust because of their scrutiny, enhancing firms’ financial systems for long-term value creation (Alshareef and Sulimany, 2024a; Sarwar et al., 2018). The resource dependency approach posits that institutions, including boards of directors, are not only essential for monitoring but also serve as a crucial link between the firm and the necessary resources for successful operations (Alsheikh and Alsheikh, 2023; Pfeffer and Salancik, 2003). The board acts as a connector between organizations and external resources, functioning as a mechanism to manage external dependencies and reduce environmental uncertainties that organizations may encounter (Abbas and Frihatni, 2023; Drees and Heugens, 2013). Hence, board expertise serves as a crucial advisory organ that guides an organization in adapting to environmental changes, identifying strategic opportunities, and facilitating firm resilience. These theories emphasise how effective monitoring and sound counsel from board financial expertise can enhance firms’ financial health and resilience.

The sample comprised 164 companies operating in the Saudi stock market. Following prior studies, financial organizations were excluded because of their peculiarities in terms of regulations and policies (Saidu and Gidado, 2018). Similarly, firms with missing information were removed from the sample. The study period spanned from 2017 to 2023. This period is crucial because Saudi corporate governance codes mandated the disclosure of risk management strategies effective from 2017 (Ebaid, 2022; Sulimany, 2024). This principle suggests that corporate bodies should devise several strategies for resilience against operational and financial risks. The sample size is presented in Fig. 1.

Fig. 1.

Sample distribution across sectors.

The information used is made up of corporate governance indicators and firm-level attributes. Corporate governance information was sourced from the firms’ annual reports published by the Saudi market (Tadawul). The firm-level indicator information was gathered from the Thomas Reuters platform.

A regression analysis was used to accomplish the research goal. The sampled data covered a time series from 2017 to 2023 across 164 companies from different sectors. Therefore, the appropriate analytical technique was the panel data method. This method is widely applied by finance and accounting studies because of its numerous benefits. It provides more data points and reduces multicollinearity issues, leading to efficient estimates (Githaiga and Kosgei, 2023; Hsiao, 1985; Pesaran, 2015). The most popular panel data techniques are the ordinary least square (OLS) method, fixed effects models, and random effects models. OLS often yields biased results because it fails to account for firm differences, resulting in inconsistent estimates. Based on recommendations in the literature, this study applied the Hausman specification test to identify the most suitable analytical tool for this research. The test indicated a significant p-value, confirming the fixed effects model as the suitable choice. The fixed effects framework produces consistent estimates because it considers firms’ differences, leading to more reliable regression results (Gujarati, 2003; Pesaran, 2015). Therefore, the following models were specified:

(2)$$\begin{array}{c}\hfill SR{V}_{it}=\alpha +{\beta }_{1}FI{S}_{it}+{\beta }_{2}F{S}_{it}+{\beta }_{3}RO{A}_{it}\hfill \\ \hfill +{\beta }_{4}LE{V}_{it}+{\beta }_{5}B{I}_{it}+{\beta }_{6}F{O}_{it}+{\beta }_{7}I{O}_{it}\hfill \\ \hfill +{\mu }_i+{\epsilon }_{it}\hfill \end{array}$$

Moreover, Eqn. 2 was specified to measure the moderating effect of board financial experience on the relationship between financial sustainability and firm resilience. In this model, the moderator variable (BFE) and the interaction term (FIS$\times$BFE) were included. A moderation effect occurs when their coefficients are significant (Aguinis et al., 2017; MacKinnon, 2011; Triana et al., 2019).

(3)$$SR{V}_{it}=\alpha +{\beta }_{1}FI{S}_{it}+{\beta }_{2}F{S}_{it}+{\beta }_{3}RO{A}_{it}$$ $$+{\beta }_{4}LE{V}_{it}+{\beta }_{5}B{I}_{it}+{\beta }_{6}F{O}_{it}+{\beta }_{7}I{O}_{it}$$ $$+{\beta }_{8}BF{E}_{it}+{\beta }_{9}FIS\times BF{E}_{it}+{\mu }_i+{\epsilon }_{it}$$

Table 2 presents summary statistics of the variables used in the models. According to the results, the stock return volatility indicator (SRV) showed an average value of 43.311, with a relatively high standard deviation. This suggests that many of the firms have SRV ratios below the average. The financial sustainability measure (FIS) revealed a maximum index of 1.040, with an average ratio of 0.049 during the period under review. Board financial expertise (BFE) demonstrated an average ratio of 0.675, meaning that 67.5 percent of the board members were financial experts. Firm size (FS) exhibited a mean of 9.491 and a maximum of 12.410 over the period.

Moreover, the profitability ratio (ROA) showed only slight dispersion among the companies, and its average ratio was 6.2 percent. Leverage (LEV) had a mean of 0.251, indicating that an average of 25.1 percent of the firms’ capital structure was based on debt financing. This evidence implies that companies rely heavily on equity sources to fund their operations. Board independence (BI) revealed that an average of 20.4 percent of the board members were independent directors. Family ownership (FO) suggests an average ratio of 0.538, while institutional ownership (IO) had a mean of 0.031. This implies that family ownership is much more concentrated than institutional shareholding in Saudi Arabia.

Table 3 displays the correlation results. This analysis aimed to examine the degree of association between the study variables and to detect whether multicollinearity exists in the models specified. Based on the results in Table 3, multicollinearity does not appear to be present because all the coefficients are below the 80% limit suggested in the literature (Gujarati, 2003; Pesaran, 2015). Therefore, multicollinearity does not exist in this study. In addition, the Variance Inflation Factor (VIF) values were lower than 10, reinforcing that there is no multicollinearity among the independent variables.

The study used regression analysis to assess the moderating effect of board financial expertise on the relationship between financial sustainability and firms’ resilience. At the initial stage, the research applied the Hausman test to select the suitable analytical tool between random and fixed effects. The test outcome indicated a significant p-value, showing that the fixed effects framework was more appropriate. Diagnostic tests such as serial correlation, heteroscedasticity, and variance inflation factor (VIF) tests were carried out to ensure the appropriateness of the specified models. Accordingly, the regression results are shown in Table 4, which is categorised into two models. The first model (Model 1) is the direct effect estimate. The second model (Model 2) presents the interaction effect analysis. The moderator variable and the interaction term were inserted into this model to examine how their presence might influence the earlier results. The R-squared values of the models indicate that the explanatory variables explained 24.22% and 25.77% of the firms’ resilience variations. Also, the F-statistics were significant, revealing the robustness of the stated models.

According to the regression results in the Model 1, financial sustainability has a strong negative influence on stock return volatility as a proxy for firms’ resilience. This indicates higher resilience as financial sustainability increases, confirming H1. This finding supports stakeholder and signalling theories’ arguments that financial sustainability signals high governance quality and boosts investors’ confidence (Barriga and Escandon‐Barbosa, 2024; Freeman, 1994). This positive outlook may enhance competitive advantage, leading to resilience against adversities. The finding implies that financial sustainability strategies demonstrate lower risks to stakeholders, leading to improved investor confidence and less stock return volatility (Adeyemi, 2019; Uche et al., 2016; Wu et al., 2024). The policy implication of the results is that firms can mitigate shocks and uncertainties by prioritising sustainable performance. The finding demonstrates that firms can boost their financial sustainability by mitigating stock return volatility and other adversities.

Regarding the control variables, it was found that leverage and institutional ownership were insignificant in the specified model. However, the coefficient of firm size suggests a strong negative effect on stock return volatility. The evidence implies that larger companies may be associated with lower stock return risk, making them more capable of absorbing shocks (DesJardine et al., 2019; Kusi et al., 2018). The results also suggest a negative and significant relationship between profitability and stock return volatility. This finding supports prior research showing that profitable firms have a greater likelihood of investing in innovation and growth initiatives, helping them build buffers to absorb disruptions (Bokpin, 2011). It was found that board independence exerts a strong influence on firms’ resilience. This aligns with studies indicating that board independence may promote decision-making quality and foster risk management oversight (Cheng et al., 2023; Jackling and Johl, 2009; Maier and Yurtoglu, 2022). This effectiveness may help firms with many independent directors on their boards become better positioned to face challenges and build resilience against shocks. The results also indicate a negative association between family ownership and stock return volatility. This evidence is consistent with studies suggesting that family ownership exerts strong monitoring on managers, which may assist companies in navigating challenges and disruptions (Alshareef, 2024; Habbash, 2016). Hence, higher family shareholding may lead to firm resilience.

The results in Model 2 focus on the moderating effect, where the moderator (BFE) and the interaction term (FIN$\times$BFE) were inserted. According to the outcome, board expertise is strongly related to firms’ resilience. The finding supports the argument that these directors may enhance corporate decision quality because of their vast knowledge of risk management strategies and financial reporting processes (Ali et al., 2022; Jeanjean and Stolowy, 2009). These robust decisions may facilitate effective management of risks to handle adversities and market uncertainties (Gilani et al., 2021; Minton et al., 2014). The interaction coefficient appears negative and significant, revealing a moderation effect and aligning with agency and resource dependency theories. These frameworks emphasise that board expertise may shape organizational outcomes because of the stringent monitoring and counsel from these specialists (Alcaide-Ruiz and Bravo-Urquiza, 2024; Fama and Jensen, 1983; Sani, 2021). The evidence also confirms prior studies highlighting the potential of board financial expertise in contributing to firms’ resilience due to effective risk management strategies (Alshareef and Sulimany, 2024b; Sarwar et al., 2018). Thus, board expertise strengthens a company’s ability to navigate challenges and adapt to changing market conditions. The policy implication of the finding is that board financial expertise may serve as an essential mechanism for enhancing firm resilience in the Saudi context. This robustness may enhance monitoring, mitigate agency costs, maximise shareholder value, and build resilience.