Leading Through Cash Flow Volatility: How CEO Integrity Mitigates Insolvency Risk

Abstract

This research examines the relationship between cash flow volatility and insolvency risk, with a specific focus on the moderating effect of CEO integrity among Pakistani non-financial corporations. By incorporating the concept of ethical leadership into the finance risk management literature, this research makes a significant contribution to the body of corporate governance research on emerging markets. Using the Generalised Method of Moments (GMM) with dynamic panel data, the empirical analysis uses a dataset of 103 listed non-financial firms on the Pakistan Stock Exchange (PSX) from 2012 to 2019. The findings provide evidence of a significant positive relationship between cash flow volatility and the risk of insolvency. Our results suggest that CEOs who demonstrate high integrity exhibit a reduced impact of cash flow volatility on the risk of insolvency. The findings are pertinent to the understanding of governance processes that can be used to reinforce organizational stability during financial uncertainty, especially within the context of Pakistan's emerging corporate environment.