Board Characteristics and Corporate Cash Flow Risk: Evidence from an Emerging Market

Abstract

This study explores how board characteristics impact corporate cash flow risk in an emerging market setting. While previous research has examined firm risk, crash risk, and earnings quality, there is limited evidence on cash flow risk and its governance factors, especially in developing economies. To fill this gap, this study differentiates between volatility-based and distortion-based measures of cash flow risk and assesses how board attributes influence these aspects. Using a balanced panel of 327 non-financial firms listed in Vietnam from 2013 to 2023, cash flow risk is measured by the rolling five-year volatility of operating cash flows and short-term distortions shown in earnings–cash flow mismatches. To address endogeneity and dynamic persistence, the analysis uses the system generalized method of moments estimator, along with fixed-effects and feasible generalized least squares models for robustness. The findings suggest that board independence, gender diversity, and financial expertise are linked to lower cash flow risk, highlighting the importance of effective monitoring. Conversely, board meeting frequency is positively linked to risk, suggesting that boards tend to increase meeting frequency as a reactive response to heightened uncertainty. Board size and CEO duality do not show consistent effects. Focusing on Vietnam’s institutional context, this study provides evidence that governance mechanisms influence different dimensions of cash flow risk through separate channels, offering valuable insights for enhancing board effectiveness in emerging markets.

1. Introduction

Cash flow risk has increasingly emerged as a vital component of corporate financial risk, reflecting the volatility and uncertainty inherent in operating cash flows that underpin firms’ liquidity, investment capacity, and long-term financial stability. In a volatile business environment, unstable cash flows can lead to elevated borrowing costs, restricted access to external financing, heightened risk of financial distress, and ultimately reduced firm valuation (Nagar & Raithatha, 2024). Consequently, comprehending the factors that influence cash flow risk is significant both academically and practically.

Prior research indicates that cash flow risk is influenced not only by macroeconomic conditions and industry characteristics but also by internal governance quality and monitoring effectiveness (Mahmoud et al., 2021). In addition, measures of cash flow risk have evolved from traditional volatility-based indicators to alternative proxies that capture the divergence between accounting earnings and actual cash flows, thereby signaling information distortion and latent risk (Chen et al., 2025). These developments imply that cash flow risk constitutes a multidimensional phenomenon affected by managerial behavior, financial reporting quality, and the institutional environment.

Of paramount importance, cash flow risk is conceptually distinct from broader firm risk measures frequently examined within the governance literature. While previous studies predominantly concentrate on market-based risk, financial distress, or earnings volatility, cash flow risk specifically pertains to the stability and reliability of operating cash flows, which directly influence firms’ liquidity and internal financing capacity. Furthermore, by incorporating both volatility-based and accrual-based components, cash flow risk encompasses not only operational uncertainty but also distortions resulting from earnings–cash flow misalignment. This distinction is crucial, yet it remains inadequately explored in prior governance research.

Recent empirical research demonstrates growing evidence that enhanced board governance—characterized by increased independence, diversity, and financial expertise—is associated with reduced firm risk across diverse institutional environments (e.g., Fareed et al., 2022; Li et al., 2022). These findings endorse the monitoring and information-efficiency perspective of corporate governance, suggesting that effective boards can mitigate uncertainty and stabilize corporate performance.

In parallel, a related body of research emphasizes the significance of cash flow dynamics in understanding firm risk and financial distress. For example, Li et al. (2022) demonstrate that cash flow volatility is a strong predictor of corporate failure, while Samarawickrama et al. (2025) show that governance-related factors such as corporate social responsibility can help reduce idiosyncratic risk in emerging markets.

Despite these advancements, contemporary research predominantly concentrates on aggregate corporate risk or market-based risk indicators, with limited attention paid to the particular dynamics of cash flow risk. Specifically, prior studies seldom distinguish between the volatility-based and distortion-based aspects of cash flow risk, nor do they systematically examine how board characteristics influence these aspects through distinct mechanisms. This gap is especially pronounced in emerging markets, where governance structures operate within environments characterized by higher levels of information asymmetry and institutional constraints.

From a theoretical perspective, agency theory suggests that weak governance increases managerial opportunism, leading to inefficient financial decisions and greater cash flow volatility (Tashfeen, 2016). Jensen’s (1986) free cash flow theory also states that excess internal funds may lead to overinvestment, thereby raising cash flow risk (Fatma & Chichti, 2011). Recent research applies stakeholder and legitimacy theories to assert that governance mechanisms, including board oversight and transparency practices such as ESG disclosure, serve to enhance stakeholder trust and mitigate financing constraints, thereby indirectly supporting cash flow stability (X. Cheng & Feng, 2023).

Expanding upon these perspectives, this study employs an integrated mechanism whereby board characteristics impact cash flow risk via two principal channels. First, the monitoring channel indicates that effective boards limit managerial opportunism and bolster financial discipline, thereby reducing managerial opportunism and improving the reliability of reported cash flows, particularly with respect to distortion-based risk. Second, the decision-quality channel posits that boards with greater expertise and diversity improve strategic decision-making and resource allocation, resulting in more stable and predictable cash-flow outcomes. These channels offer a comprehensive explanation connecting governance structures to various aspects of cash flow risk.

Within this framework, the board of directors’ functions as a crucial internal monitoring mechanism. Nevertheless, empirical evidence regarding the influence of board characteristics on cash flow risk remains inconclusive. Current research presents mixed findings, partly attributable to variations in risk measurement (Chen et al., 2025), and is predominantly focused on developed markets. Conversely, emerging Asian economies—particularly Vietnam—are underrepresented in such studies (Mahmoud et al., 2021). Furthermore, there is a scarcity of research examining multiple board attributes concurrently within an integrated analytical framework.

Motivated by these gaps, this study examines how board characteristics—including board size, meeting frequency, independence, gender diversity, financial expertise, and CEO duality—affect various aspects of cash flow risk among publicly listed companies in Vietnam. By distinguishing between volatility-based and distortion-based measures of cash flow risk and linking them to specific governance mechanisms, this research provides a more nuanced understanding of how board attributes influence financial stability. The findings contribute to the literature on corporate governance by offering a mechanism-based explanation of how different board characteristics impact distinct dimensions of cash flow risk. By integrating both volatility-based and distortion-based perspectives within a cohesive framework, this study broadens the scope of existing research beyond traditional firm risk measures and presents new insights into governance effectiveness in emerging markets.

2. Theoretical Background

Cash flow risk constitutes a crucial aspect of corporate financial risk, denoting the volatility and unpredictability inherent in operating cash flows that underpin a company’s liquidity, investment capabilities, and long-term growth prospects. Although conventional perspectives highlight macroeconomic and industry-related factors, recent scholarly investigations suggest that internal governance mechanisms and managerial actions also play a significant role in influencing cash flow patterns (Mahmoud et al., 2021; Chen et al., 2025). Notably, cash flow risk is presently regarded as a multidimensional construct, encompassing both volatility-based risk and distortion-based risk stemming from discrepancies between accounting earnings and actual cash flows.

To elucidate the theoretical relationship between board characteristics and cash flow risk, this study references two principal domains of scholarly literature. Firstly, the agency-based framework introduced by Fama and Jensen (1983) emphasizes the distinction between decision-making and monitoring roles within organizations. Independent, well-structured boards promote more effective oversight, reduce information asymmetry, and align managerial incentives with shareholder interests. These mechanisms serve to mitigate managerial opportunism, improve investment efficiency, and ultimately contribute to more stable and predictable cash flows.

Secondly, the accrual-based perspective on earnings quality, as developed by Dechow and Dichev (2002), offers a theoretical foundation for understanding the discrepancies between accounting earnings and cash flows. Their model suggests that wider gaps between accrual-based earnings and actual cash flows indicate lower earnings quality and heightened estimation errors, often stemming from managerial discretion or timing adjustments. In this research, this perspective is applied through the second measure of cash flow risk (CFR2), which is defined as the difference between return on assets and operating cash flows divided by total assets (ROA − CFO/TA). A greater divergence indicates increased earnings–cash flow misalignment, implying potential distortions that elevate short-term financial risk. Significantly, governance mechanisms can impact not only the volatility of cash flows but also the extent of these distortions by influencing the quality of financial reporting and managerial discretion.

Building upon these theoretical foundations, board characteristics influence cash flow risk through several interconnected mechanisms, including monitoring effectiveness, information quality, incentive alignment, and decision-making processes. These mechanisms collectively determine whether boards contribute to the stabilization or destabilization of corporate cash flows, particularly in environments characterized by information asymmetry.

Agency theory further illustrates that inadequate governance frameworks amplify managerial opportunism, resulting in inefficient investments, excessive cash accumulations, and distorted reporting practices—all of which contribute to increased cash flow volatility and diminished predictability (Amir & Nozari, 2015; Tashfeen, 2016). Supporting this perspective, Jensen’s (1986) free cash flow theory posits that discretionary control over internal funds may encourage overinvestment in projects that undermine value, thereby heightening cash flow risk. Conversely, stakeholder and legitimacy theories contend that enhanced transparency and governance, such as ESG disclosures, bolster stakeholder trust, facilitate access to funding, and contribute to financial stability.

Importantly, the effectiveness of these governance mechanisms heavily depends on the institutional environment. In emerging markets like Vietnam, which are characterized by high ownership concentration, weaker investor protection, and greater information asymmetry, internal governance—especially board oversight—plays a more vital role in reducing financial risk. In such environments, board effectiveness may replace weak external monitoring mechanisms, making governance features particularly influential in maintaining cash flow stability (Mahmoud et al., 2021).

Within this framework, specific board characteristics influence cash flow risk through different but interconnected channels. Board size reflects the balance between resource diversity and coordination efficiency. Larger boards may provide broader expertise and better oversight (resource dependence perspective), but excessive size can lead to coordination problems and slower decision-making, potentially increasing risk (S. Cheng, 2008; Haider & Fang, 2016; Shinozaki & Uchida, 2011).

Board meeting frequency indicates the level of board engagement. More frequent meetings can improve oversight and response times; however, they might also suggest reactive governance driven by financial issues or increased uncertainty. This dual meaning shows that the link between meeting frequency and cash flow risk remains unclear (Eluyela et al., 2018; Chow, 2024; Usman et al., 2025). Board independence enhances monitoring by reducing managerial entrenchment and information asymmetry, leading to better decision-making and more stable cash flows. However, its effectiveness may vary across different institutional settings, especially where independent directors face limitations in influence or access to information (Jiraporn & Lee, 2018; Younas et al., 2019; Gallego-Álvarez & Pucheta-Martínez, 2022). Similarly, board gender diversity promotes cognitive diversity and improves decision quality by integrating different perspectives, which can help moderate excessive risk-taking and strengthen strategic oversight. Nonetheless, some theories suggest that diversity might also lead to conflicts and slow down decision-making, indicating potential trade-offs in its impact on risk (Atif et al., 2019; Ahsan Alias Sarang et al., 2021; Yin et al., 2025). Board financial expertise enhances the board’s ability to interpret complex financial data, oversee reporting quality, and assess risk exposure, thereby improving cash flow management and financial reporting accuracy. However, such expertise can also be associated with short-term performance pressures that could incentivize earnings manipulation in certain situations (Apergis, 2019; Chen et al., 2025). Lastly, CEO duality centralizes decision-making authority, which might weaken monitoring and increase risk. Yet, in some cases, unified leadership could improve strategic consistency and decision speed, suggesting that its impact on cash flow risk might not always be negative (Aktas et al., 2019; Hassan et al., 2023).

Nonetheless, the relationship between board characteristics and cash flow risk may not be unidirectional. For instance, although larger boards provide a broader spectrum of expertise, they may also lead to slower decision-making processes and coordination inefficiencies, thereby potentially augmenting operational volatility. Similarly, frequent board meetings may denote active monitoring; however, they could also reflect underlying issues within the firm and heightened risk conditions. Furthermore, the efficacy of independent directors depends on the institutional environment and their actual capacity to influence managerial decisions. In emerging markets, formal independence does not necessarily equate to effective oversight due to information asymmetry or weak enforcement mechanisms. These contrasting perspectives suggest that the impact of board characteristics on cash flow risk remains an empirical question.

Importantly, the distinction between volatility-based and distortion-based measures of cash flow risk enables a more nuanced theoretical interpretation. Volatility-based risk encompasses fluctuations in operating cash flows that originate from actual business activities and strategic choices, whereas distortion-based risk denotes discrepancies attributable to earnings management and reporting quality. Consequently, governance mechanisms that primarily restrict managerial opportunism are anticipated to exert a more pronounced impact on distortion-based risk, while those influencing strategic decision-making and operational efficiency are likely to be more closely associated with volatility-based risk.

Given the multidimensional nature of cash flow risk, the following hypotheses are formulated in a general form, while the empirical analysis further distinguishes between volatility-based and distortion-based risk measures to capture differential governance effects:

H1. 

Board size is negatively associated with cash flow risk.

H2. 

Board meeting frequency is associated with cash flow risk.

H3. 

Board independence is negatively associated with cash flow risk.

H4. 

Board gender diversity is negatively associated with cash flow risk.

H5. 

Board financial expertise is negatively associated with cash flow risk.

H6. 

CEO duality is positively associated with cash flow risk.

3. Research Method

3.1. Data and Sample Selection

This study utilizes a balanced panel dataset comprising 327 non-financial firms listed in Vietnam from 2013 to 2023. The chosen time frame encompasses various phases of the economic cycle and reflects institutional changes that could influence corporate governance structures and firms’ cash flow risk. Financial institutions have been excluded due to their unique regulatory environment and financial reporting characteristics.

Firm-level data are obtained from audited financial statements, annual reports, and the Vietnamese stock market database. To maintain data quality and consistency, the dataset is carefully cleaned by checking for missing values and internal inconsistencies. Following common practice in empirical corporate finance research, all continuous variables are winsorized at the 1st and 99th percentiles to reduce the impact of outliers.

3.2. Measurement of Cash Flow Risk

Cash flow risk gauges the uncertainty in operating cash flows and a company’s capacity to generate enough internal funds to meet its financial obligations. It is therefore an essential indicator of corporate financial health (Charitou et al., 2004). Previous research shows that increased cash flow volatility raises the cost of capital and default risk, thereby increasing the likelihood of financial distress (Froot et al., 1993; A. G. Huang, 2009; Bartram et al., 2011; Douglas et al., 2016).

Based on this literature, two complementary measures are used. CFR1 is defined as the standard deviation of operating cash flows over a five-year rolling window, scaled by sales, which captures persistent cash flow volatility (A. G. Huang, 2009; Bartram et al., 2011; Hong et al., 2017).

CFR2 is determined by the difference between return on assets (ROA) and operating cash flows divided by total assets (CFO/TA), reflecting short-term distortions caused by earnings–cash flow misalignment. In accordance with the accrual-based framework of Dechow and Dichev (2002), a larger gap between accrual-based profitability and cash-based performance signals lower earnings quality and a higher chance of distortions from managerial discretion or timing adjustments.

Using both measures helps us differentiate between volatility-based and distortion-based aspects of cash flow risk, leading to a more comprehensive assessment and enhancing the robustness of the results.

3.3. Explanatory and Control Variables

The primary explanatory variables include six board characteristics: board size, frequency of board meetings, board independence, gender diversity within the board, financial expertise of the board, and CEO duality. These variables represent the monitoring, advisory, and decision-making functions of the board, as emphasized in the corporate governance literature.

Control variables are chosen based on theoretical considerations and previous empirical research and encompass financial leverage (LEV), firm size (FSIZE), profitability (ROA), asset tangibility (TANG), firm age (AGE), and audit quality (BIG4). Detailed definitions and measurement methods for all variables are provided in

Table 1. Variable Definition and Measurement.

Variable	Symbol	Measurement	References
Cash flow risk (5-year volatility)	CFR1	Standard deviation of operating cash flows over a rolling 5-year window, scaled by sales	(A. G. Huang, 2009; Bartram et al., 2011; Hong et al., 2017; Li et al., 2022)
Cash flow risk (cash flow distortion)	CFR2	ROA − CFO/TA	(Dechow & Dichev, 2002)
Board size	BDSIZE	Total number of board members	(S. Cheng, 2008; Haider & Fang, 2016)
Board meeting frequency	BDMEET	Number of board meetings per year	(Eluyela et al., 2018; Chow, 2024)
Board independence	BDIN	Proportion of independent directors	(Jiraporn & Lee, 2018; Younas et al., 2019)
Board gender diversity	BDGEN	Number of female board members	(Atif et al., 2019; Yin et al., 2025)
Board financial expertise	BDKN	Dummy = 1 if at least one director has financial expertise	(Apergis, 2019; Gómez-Escalonilla & Parte, 2017)
CEO duality	BDUAL	Dummy = 1 if the CEO also serves as board chair	(Aktas et al., 2019)
Financial leverage	LEV	Total debt/total assets	(Fatma & Chichti, 2011)
Firm size	FSIZE	Natural logarithm of total assets	(Tashfeen, 2016)
Profitability	ROA	Net income/total assets	(Tashfeen, 2016)
Asset tangibility	TANG	Fixed assets/total assets	(Tashfeen, 2016)
Firm age	AGE	Number of years since establishment	Common practice
Audit quality	BIG4	Dummy = 1 if audited by a Big 4 firm	(Dang & Khanh Dung, 2024)

.

3.4. Model Specification

Based on the theoretical framework and hypotheses developed in the previous section, the following panel regression model is specified to examine the impact of board characteristics on cash flow risk:

CFR_it = β₀ + β₁BDSIZE_it + β₂BDMEET_it + β₃BDIN_it + β₄BDGEN_it +
  + β₅BDKN_it + β6BDUAL_it + β7Controls_it + δ_t + ϕ_k + ε_it

where i denotes firms, t denotes time, δ_t represents year fixed effects, and ϕ_k denotes industry fixed effects.

3.5. Estimation Strategy

The estimation is carried out in three stages. First, pooled OLS, fixed-effects (FE), and random-effects (RE) models are estimated. The F-test, Breusch–Pagan LM test, and Hausman test suggest that the FE model is the most suitable, indicating the presence of firm-specific heterogeneity.

Second, diagnostic tests identify heteroskedasticity and serial correlation. To address these problems, the feasible generalized least squares (FGLS) estimator is employed with heteroskedasticity and AR(1) adjustments.

Third, concerns about endogeneity are addressed. Reverse causality might occur if firms change board structures in response to previous risk, while omitted variables like managerial ability may jointly influence governance and cash-flow stability (Hermalin & Weisbach, 1998). Measurement error could also bias the estimates. To handle these issues, the system GMM estimator (Blundell & Bond, 1998) is used, employing lagged variables as instruments to account for persistence and simultaneity. The Hansen J and AR(2) tests confirm the validity of the instruments.

Overall, using FE, FGLS, and SGMM together offers robust and dependable estimates.

4. Results and Discussions

4.1. Descriptive Statistics

Table 2. Descriptive summary of variables.

Variable	N	Mean	SD	Min	Max
CFR1	3597	0.0810	0.0654	0.0060	0.3564
BDSIZE	3597	5.5160	1.2988	0.0000	12.0000
BDMEET	3597	10.2549	8.7836	0.0000	50.0000
BDIN	3597	0.1540	0.1728	0.0000	0.8333
BDGEN	3597	1.2160	1.4224	0.0000	9.0000
BDKN	3597	0.3775	0.4848	0.0000	1.0000
BDUAL	3597	0.1721	0.3775	0.0000	1.0000
BIG4	3597	0.5149	0.4998	0.0000	1.0000
LEV	3597	0.4763	0.2284	0.0312	0.9048
FSIZE	3597	12.0034	0.6706	10.5131	13.7537
ROA	3597	0.1195	0.1435	−0.4599	0.5536
TANG	3597	0.1889	0.2010	0.0000	0.8628
AGE	3597	28.3761	14.8087	4.0000	96.0000

presents descriptive statistics for the variables used in the analysis, based on 3597 firm-year observations from 327 non-financial listed companies collected between 2013 and 2023. The average cash flow risk (CFR1) is 0.081, with a standard deviation of 0.0654, indicating significant variation in operating cash flows across firms. The wide range of CFR1 values shows considerable differences in cash flow stability among Vietnamese companies.

Regarding the characteristics of the board, the average number of members is 5.52. The typical number of board meetings held annually is 10.25, though there is significant variability, reflecting differences in board activity among entities and over time. Independent directors make up about 15.4% of the total board, while the boards have an average of 1.22 female directors, indicating relatively low levels of independence and gender diversity compared to international standards. About 38% of companies have at least one director with financial expertise, and CEO duality exists in 17.2% of the sample. Overall, the descriptive statistics show considerable variation in governance structures and firm characteristics, supporting the use of panel data methods that account for heterogeneity.

4.1.1. Correlation Analysis

Table 3. Correlation coefficient matrix.

Variables	CFR1	BDSIZE	BDMEET	BDIN	BDGEN	BDKN	BDUAL	BIG4	LEV	FSIZE	ROA	TANG	AGE
CFR1	1.00
BDSIZE	−0.15 ***	1.00
BDMEET	−0.02	0.05 **	1.00
BDIN	0.00	0.05 **	0.08 ***	1.00
BDGEN	−0.04 **	0.18 ***	0.08 ***	0.08 ***	1.00
BDKN	−0.10 ***	0.13 ***	0.05 **	0.08 ***	0.06 ***	1.00
BDUAL	0.03	−0.02	−0.06 ***	−0.01	−0.07 ***	0.02	1.00
BIG4	−0.11 ***	0.20 ***	0.06 ***	0.03 **	0.08 ***	0.07 ***	−0.08 ***	1.00
LEV	−0.01	−0.01	0.17 ***	−0.09 ***	−0.09 ***	−0.02	−0.02	0.02	1.00
FSIZE	−0.24 ***	0.37 ***	0.30 ***	0.14 ***	0.12 ***	0.11 ***	−0.09 ***	0.36 ***	0.28 ***	1.00
ROA	0.02	0.13 ***	0.01	0.04 **	−0.04 **	0.06 ***	−0.00	0.09 ***	−0.15 ***	0.13 ***	1.00
TANG	−0.19 ***	0.13 ***	−0.04 **	−0.04 **	−0.03	0.04 **	−0.08 ***	0.03	−0.07 ***	0.10 ***	0.05 ***	1.00
AGE	−0.01	−0.03 *	−0.01	−0.04 **	0.07 ***	0.01	−0.04 **	−0.07 ***	0.11 ***	−0.01	0.05 **	0.06 ***	1.00

Notes: * p < 0.10; ** p < 0.05; *** p < 0.01.

presents the correlation matrix. Cash flow risk (CFR1) exhibits a negative and statistically significant correlation with board size, board financial expertise, and firm size, indicating that companies with enhanced governance structures and larger scales tend to experience more stable cash flows. Additionally, board gender diversity and board independence demonstrate modest yet statistically significant correlations with CFR1, whereas CEO duality shows no significant association with cash flow risk. All correlation coefficients are well below the threshold indicative of multicollinearity concerns.

4.1.2. Multicollinearity Diagnostics

Variance inflation factor (VIF) statistics shown in

Table 4. VIF results.

Variable	VIF	1/VIF
FSIZE	1.620	0.618
LEV	1.240	0.809
BDSIZE	1.230	0.811
BIG4	1.170	0.851
BDMEET	1.130	0.887
BDGEN	1.090	0.922
ROA	1.080	0.926
TANG	1.060	0.947
BDIN	1.060	0.948
AGE	1.040	0.959
BDKN	1.030	0.969
BDUAL	1.020	0.976
Mean VIF	1.150

suggest no multicollinearity problems. VIF values range from 1.02 to 1.62, with an average of 1.15, indicating that the explanatory variables can be included together in the regression models without bias from collinearity.

4.2. Model Selection and Diagnostic Tests

Model selection tests shown in

Table 5. Model selection test results.

Test	Statistic	p-Value	Interpretation
F-test (FE vs. OLS)	F(326, 3257) = 5.66	0.0000	OLS is rejected; the FE model is preferred
Breusch–Pagan LM test (RE vs. OLS)	Chi-square (significant)	0.0000	OLS is rejected; the RE model is preferred
Hausman test (FE vs. RE)	χ2(12) = 21.08	0.0492	FE estimator is consistent; RE is rejected
Breusch–Pagan test for heteroskedasticity (OLS)	χ2 = 133.74	0.0000	Presence of heteroskedasticity
Modified Wald test for heteroskedasticity (FE)	χ2(327) = 81,169.75	0.0000	Severe heteroskedasticity across panels
Wooldridge test for autocorrelation	F(1, 326) = 606.70	0.0000	Presence of first-order autocorrelation
LM test (RE)	Significant	0.0000	Panel effects are present
Conclusion	—	—	The FE model is selected; FGLS and SGMM are required to address heteroskedasticity and autocorrelation

reject the pooled OLS specification in favor of panel models. The Hausman test supports the FE estimator, indicating the presence of firm-specific unobserved heterogeneity correlated with the regressors. Diagnostic tests further indicate heteroskedasticity and first-order serial correlation, suggesting that standard FE estimates may be inefficient. Therefore, FGLS and SGMM estimators are used to address heteroskedasticity, autocorrelation, and potential endogeneity. SGMM is used as the baseline, and FE and FGLS results are provided for robustness comparison.

4.3. Regression Results

Table 6. FE, FGLS, and SGMM estimates.

Variables	FE	FGLS	SGMM
BDSIZE	−0.0017 (−1.410)	−0.0004 (−0.671)	0.0003 (0.311)
BDMEET	0.0001 (0.539)	0.0001 * (1.721)	0.0002 * (1.850)
BDIN	−0.0131 * (−1.835)	−0.0020 (−0.449)	−0.0124 * (−1.951)
BDGEN	−0.0009 (−1.174)	−0.0015 ** (−2.105)	−0.0019 * (−1.747)
BDKN	−0.0096 *** (−3.351)	−0.0029 * (−1.702)	−0.0028 * (−1.754)
BDUAL	−0.0031 (−0.961)	0.0010 (0.439)	0.0010 (0.355)
BIG4	0.0019 (0.619)	−0.0006 (−0.343)	−0.0039 (−1.531)
LEV	−0.0065 (−0.647)	0.0033 (0.597)	−0.0134 (−0.621)
FSIZE	−0.0004 (−0.061)	−0.0171 *** (−8.624)	−0.0097 ** (−2.577)
ROA	0.0248 *** (2.863)	0.0202 *** (3.662)	0.0246 (0.866)
TANG	−0.0454 *** (−4.216)	−0.0312 *** (−6.058)	−0.0324 *** (−4.495)
AGE	−0.0001 (−0.227)	−0.0001 (−1.421)	−0.0001 (−0.846)
L.CFR1	—	—	0.4825 *** (9.441)
Constant	0.1120 (1.514)	0.3238 *** (13.677)	0.1878 *** (3.844)
Industry FE	Yes	Yes	Yes
Year FE	Yes	Yes	Yes
Observations	3596	3596	3269
Number of instruments	—	—	28
AR(2) test (p-value)	—	—	0.214
Hansen J (p-value)	—	—	0.372

Notes: *, **, *** denote significance at 10%, 5%, and 1%, respectively. SGMM is two-step robust (Arellano–Bover/Blundell–Bond).

presents the regression results. The SGMM estimates demonstrate pronounced persistence in cash flow risk, as evidenced by the positive and highly significant coefficient on the lagged dependent variable. This observation suggests that cash flow risk exhibits considerable dynamic behavior over time.

Among board characteristics, the frequency of board meetings is positively and weakly significantly correlated with cash flow risk, suggesting that boards tend to convene more frequently during periods of increased uncertainty. Board independence demonstrates a negative and statistically significant impact, indicating that a higher proportion of independent directors fosters cash flow stability. Additionally, board gender diversity is negatively associated with cash flow risk, supporting the argument that female representation on boards enhances vigilant oversight. Notably, board financial expertise exhibits a negative and statistically significant effect on cash flow risk in the SGMM model, reaffirming its importance in strengthening financial oversight and stabilizing operating cash flows.

In contrast, the size of the board and CEO duality do not exhibit statistically significant effects after adjusting for endogeneity and dynamic persistence. Concerning the control variables, asset tangibility consistently diminishes cash flow risk, whereas firm size is negatively associated with cash flow risk at conventional significance levels. Other control factors, including leverage, profitability, audit quality, and firm age, do not demonstrate significance within the SGMM specification.

Diagnostic tests confirm the validity of the SGMM model. The AR(2) test indicates no second-order serial correlation, and the Hansen J test supports the validity of the instrument set. Significantly, although the fundamental results are presented utilizing the volatility-based measure (CFR1), the interpretation of the findings can be extended to encompass the multidimensional nature of cash flow risk. Governance variables associated with monitoring effectiveness—such as board independence and financial expertise—are more likely to mitigate distortion-based risk by enhancing reporting quality and limiting earnings–cash flow misalignment. Conversely, variables related to decision-making processes—such as board meeting frequency—are more closely associated with volatility-based risk, reflecting firms’ operational responses to uncertainty. This distinction is further explored in the robustness analysis.

The overall findings of the SGMM results suggest that variables such as the frequency of board meetings, board independence, gender diversity within the board, and financial expertise of the board are significantly correlated with corporate cash flow risk. Conversely, board size and CEO duality do not exhibit a significant relationship. Consequently, hypotheses H2, H3, H4, and H5 are substantiated by the empirical data, whereas hypotheses H1 and H6 are not.

5. Discussion

The empirical findings provide partial support for the proposed governance mechanisms. Specifically, variables related to monitoring effectiveness—including board independence and financial expertise—show a consistent negative correlation with cash flow risk, thereby confirming the monitoring channel. Conversely, variables linked to board activity, such as meeting frequency, appear to reflect reactive governance behavior rather than proactive risk mitigation, which more closely aligns with the decision-quality channel.

The empirical results from the SGMM model reveal that corporate cash-flow risk is highly persistent over time, confirming the dynamic nature of operating cash flows. This suggests that cash-flow risk is influenced by structural firm characteristics and managerial decisions that vary over time, rather than by short-term shocks alone (Mahmoud et al., 2021; Chen et al., 2025). Therefore, reducing cash-flow risk requires continuous governance mechanisms instead of temporary solutions.

With regard to the characteristics of the board, the positive correlation between the frequency of board meetings and cash flow risk underscores an important governance dynamic in emerging markets, such as Vietnam. Instead of suggesting that increased meeting frequency directly raises risk, this outcome indicates that boards tend to meet more often in response to increased uncertainty or operational difficulties. As a result, meeting frequency may serve as a proxy for reactive governance rather than effective oversight. This interpretation aligns with previous research showing that frequent meetings do not necessarily lead to better outcomes without meaningful decision-making (Eluyela et al., 2018; Al-Daoud et al., 2016), as reported by Usman et al. (2025), which reports a positive association between board meeting frequency and opportunistic cash flow classification behavior, contrasting with the evidence from Malaysia presented by Chow (2024). Collectively, these findings suggest that the number of meetings alone constitutes an inadequate measure of effective board oversight, particularly in contexts where governance practices remain largely formalistic.

Conversely, board independence is observed to markedly reduce cash flow risk, providing compelling support for agency theory’s predictions. Independent directors bolster monitoring efficacy by constraining opportunistic investments, regulating excess cash reserves, and enhancing resource allocation efficiency (Jiraporn & Lee, 2018; Usman et al., 2025). This finding aligns with evidence from both developed and emerging markets (Amir & Nozari, 2015; Jiraporn & Lee, 2018; Younas et al., 2019; Nhung et al., 2024). In the Vietnamese context—characterized by concentrated ownership and limited minority shareholder activism—the monitoring function of independent directors appears particularly vital in mitigating information asymmetry and stabilizing corporate cash flows.

The findings further reaffirm the significance of gender diversity on corporate boards in risk mitigation. In accordance with resource dependence and behavioral theories, boards with diverse gender representation tend to exhibit enhanced prudence, encompass a wider range of perspectives, and uphold stricter adherence to governance standards. This observation corroborates previous evidence linking female board representation to reduced liquidity risk (Ahsan Alias Sarang et al., 2021), decreased firm and financial risk (Batra et al., 2025; Mohsni et al., 2021), improved reporting quality (Usman et al., 2025), and diminished banking and credit risk (Al Mutairi & Bakar, 2023; L. Y. Huang et al., 2025). Notably, prior research indicates that these benefits are most significant when a critical mass of female directors is attained (Yin et al., 2025). As Vietnam advances its commitment to sustainable governance and gender equality in corporate leadership, this finding acquires particular importance for the structuring of board compositions.

Board financial expertise is similarly found to be inversely related to cash flow risk, thereby supporting both arguments concerning managerial competence and resource dependence theory. Directors with financial proficiency are better equipped to evaluate risk exposure, oversee cash flow management, and appraise the quality of financial information. This conclusion aligns with prior research documenting a stabilizing influence of financial expertise on firm risk and cash flow volatility (Apergis, 2019; Gómez-Escalonilla & Parte, 2017; Gallego-Álvarez & Pucheta-Martínez, 2022; Al Mutairi & Bakar, 2023). Furthermore, it reinforces recent evidence indicating that financial expertise on the board enhances monitoring efficacy and diminishes cash flow distortion resulting from earnings–cash flow misalignment (Mahmoud et al., 2021; Chen et al., 2025).

Conversely, board size does not have a statistically significant impact on cash flow risk once endogeneity and dynamic persistence are considered. This suggests that structural features alone may not be enough to influence cash flow risk, as governance effectiveness seems to rely more on functional qualities such as expertise and independence. Although board size shows a negative bivariate correlation with cash flow risk—consistent with evidence from Vietnam (Nhung et al., 2024) and the idea that larger boards can reduce extreme decision-making through greater resource diversity (S. Cheng, 2008)—its effect becomes insignificant in the multivariate dynamic context. This indicates that any advantages of larger boards may be balanced out by coordination costs and slower decision-making, resulting in a neutral overall impact on risk. These results align with previous research suggesting that board effectiveness is driven more by qualitative attributes than by size alone (Celiktas et al., 2025; Usman et al., 2025), thus reinforcing the idea that governance quality depends on how boards operate rather than how big they are.

Similarly, CEO duality exhibits a positive yet statistically insignificant association with cash flow risk, corroborating the findings of Nhung et al. (2024), Voinea et al. (2022), and Al Mutairi and Bakar (2023). Although some research indicates that CEO duality may mitigate risk within state-owned enterprises or during periods of crisis (Gallego-Álvarez & Pucheta-Martínez, 2022; Hassan et al., 2023), the evidence derived from Vietnam suggests that concentrated authority does not systematically elevate cash flow risk. This observation aligns with stewardship theory, which posits that unified leadership can facilitate improved coordination in environments characterized by high information costs and concentrated ownership. The absence of statistical significance regarding CEO duality may also be attributable to the institutional context of Vietnam, where concentrated ownership structures and informal governance mechanisms can serve as substitutes for formal monitoring functions. Consequently, the separation of leadership roles may not exert a consistent influence on cash flow risk. The findings concerning control variables further substantiate the proposed mechanisms for stabilizing cash flow risk. Asset tangibility consistently diminishes cash flow risk, thereby reinforcing the free cash flow theory and empirical evidence that tangible assets augment collateral capacity and financial flexibility (Fatma & Chichti, 2011). Furthermore, firm size exhibits an inverse relationship with cash flow risk, indicating economies of scale and enhanced resilience to operational shocks, as documented by Mahmoud et al. (2021) and Chen et al. (2025).

Overall, the findings show that improving the quality of the board—particularly concerning independence, diversity, and financial expertise—is an effective way to reduce cash-flow risk in emerging markets. On the other hand, governance practices that focus only on formal structures, such as more frequent meetings, may not lead to significant improvements. These results provide indicative evidence that improving board quality could contribute to better governance outcomes

6. Robustness Checks

To validate robustness and capture the multidimensional nature of cash flow risk, the study replaces the baseline volatility-based measure (CFR1) with a distortion-based proxy (CFR2), reflecting earnings–cash flow misalignment.

The results (

Table 7. Robustness check with CFR2 as an alternative measure.

Variables	FE	FGLS	SGMM
BDSIZE	−0.0021 (−0.8604)	−0.0005 (−0.4736)	−0.0015 (−0.5982)
BDMEET	0.0009 *** (2.6600)	0.0006 *** (4.2144)	0.0006 ** (2.0814)
BDIN	−0.0166 (−1.1605)	−0.0155 * (−1.9077)	−0.0243 * (−1.9160)
BDGEN	−0.0001 (−0.0893)	−0.0020 (−1.4668)	−0.0029 (−1.0788)
BDKN	−0.0033 (−0.5743)	−0.0040 (−1.4708)	−0.0096 * (−1.7392)
BDUAL	−0.0029 (−0.4426)	0.0067 * (1.7525)	−0.0030 (−0.4138)
BIG4	−0.0084 (−1.3506)	−0.0051 * (−1.6524)	−0.0059 (−1.1333)
LEV	−0.0016 (−0.0799)	0.0666 *** (8.7283)	−0.0250 (−0.5936)
FSIZE	0.0912 *** (6.6789)	0.0069 *** (2.7239)	0.0187 ** (2.2330)
ROA	0.8345 *** (47.8874)	0.7517 *** (71.0433)	0.6543 *** (10.9100)
TANG	−0.0681 *** (−3.1488)	−0.1068 *** (−15.5417)	−0.1220 *** (−7.8577)
AGE	−0.0016 * (−1.9506)	−0.0004 *** (−4.1784)	−0.0002 (−0.9430)
L.CFR1	—	—	0.0506 (0.3504)
Constant	−1.0574 *** (−7.1093)	−0.0629 ** (−2.1424)	−0.0960 (−0.8916)
Industry FE	Yes	Yes	Yes
Year FE	Yes	Yes	Yes
Observations	3596	3596	3269
Number of instruments	—	—	137
AR(2) test (p-value)	—	—	0.978
Hansen J (p-value)	—	—	0.064

Notes: *, **, *** denote significance at 10%, 5%, and 1%, respectively.

) remain consistent with the baseline. Board meeting frequency (BDMEET) continues to show a positive and significant effect, indicating reactive governance behavior. In contrast, board independence (BDIN) and financial expertise (BDKN) exhibit stable negative effects, supporting the monitoring channel through which effective oversight reduces distortion-related risks by improving reporting quality.

Board gender diversity (BDGEN) and CEO duality (BDUAL) remain insignificant, indicating their limited influence on shaping reporting-related risk. Control variables show expected signs. SGMM diagnostics verify model validity (no AR(2), valid Hansen test), and the number of instruments is properly managed.

Overall, the findings confirm that monitoring-related governance attributes consistently lower distortion-based cash flow risk, while board activity primarily indicates firms’ responses to underlying uncertainty.

7. Conclusions

This study investigates the association between board characteristics and corporate cash flow risk utilizing a balanced panel dataset of non-financial publicly listed companies in Vietnam. Applying fixed effects (FE), feasible generalized least squares (FGLS), and system generalized method of moments (SGMM) estimators, the results confirm that cash flow risk demonstrates significant persistence and is consistently influenced by governance mechanisms.

The results underscore that governance attributes related to monitoring effectiveness—specifically, board independence, gender diversity, and financial expertise—are consistently associated with reduced cash flow risk, thereby emphasizing their role in improving oversight quality and ensuring the stabilization of corporate cash flows. Conversely, the frequency of board meetings correlates positively with risk, implying that heightened board activity often reflects reactive governance measures in response to underlying uncertainty, rather than proactive risk management. Furthermore, board size and CEO duality do not demonstrate significant impacts once endogeneity and dynamic persistence are accounted for, indicating that structural attributes alone are inadequate without effective monitoring capabilities.

Importantly, the robustness analysis utilizing an alternative distortion-based measure of cash flow risk corroborates these findings. Monitoring-related attributes remain effective in mitigating reporting-related risk, while board activity continues to reflect firms’ responses to uncertainty. This distinction indicates that governance mechanisms impact different dimensions of cash flow risk through distinct channels, particularly in monitoring versus decision-making processes.

From a practical standpoint, the findings suggest that enhancing board effectiveness necessitates not only the implementation of formal structures but also substantive monitoring capabilities. Increasing independence and financial expertise seems particularly crucial for mitigating both operational volatility and reporting distortions, whereas an excessive dependence on meeting frequency may not effectively contribute to risk mitigation.

This study contributes to the literature by providing mechanism-based evidence on how board characteristics influence multiple dimensions of cash flow risk in an emerging market context. Future research may extend this analysis by exploring non-linear governance effects, ownership structures, or alternative institutional settings to further clarify the governance–risk relationship.