Do Voluntary Corporate Risk Disclosures and Board Leadership Effectiveness Predict Firm Performance? The Moderating Role of Audit Committee Financial Expertise in Malaysia

Deficiencies in the quality of risk reporting impede investors’ ability to make well-informed investment decisions.
In the wake of unexpected corporate collapses, calls for a greater amount of voluntary risk disclosures by the regulators are
entirely legitimate, in the expectation that improved risk reporting published in the annual report enables investors to assess a
firm’s risk profile and its firm value more accurately. This study investigates the relationship between the voluntary corporate
risk disclosures (VCRD), board leadership effectiveness, audit committee financial expertise, and firm performance of 290
companies listed on the Kuala Lumpur Stock Exchange (KLSE). To collect and measure the quality of risk disclosures, we
performed a manual content analysis method. We employ the partial least square structural equation modelling (PLS-SEM)
technique, and the empirical results show that the relationship between VCRD and firm performance is positive and significant.
We found a significant and positive relationship between board size and the level of firm performance, as measured by both
accounting (ROA) and market-based performance (Tobin’s Q) measures. However, CEO duality is found to be non-significant
in its association with firm performance. SEM results further demonstrate that audit committee financial expertise has a
positive and significant moderating influence on the VCRD-ROA nexus. Overall, the findings of this study demonstrated
that the exogenous latent constructs collectively accounted for 30.8% and 69.3% of the variance in ROA and Tobin’s Q,
respectively. Research contributions, policy implications, and future directions are also discussed in this paper. To the best of
the authors’ knowledge, no study has yet to examine the interplay between the extent of VCRD, governance mechanisms, and
firm performance in Malaysia, following the implementation of the Malaysian Code of Corporate Governance (MCCG) 2017.