Board Financial Expertise and Financial Sustainability: Evidence from Saudi-Listed Firms

Abstract

This paper evaluates the effects of board financial expertise on the financial sustainability of Saudi non-financial listed companies. The research sampled data from 97 companies covering 2013 to 2022 and analysed the data using different econometric models. The research findings indicated a strong and positive impact of board financial expertise on sustainable performance. This outcome implies that financial sustainability may increase as the number of finance specialists on the board rises. The evidence supports agency framework, resource dependency, and upper echelons theories. These frameworks argue that stringent monitoring, technical advice, and intellectual competence of finance specialists may positively influence organisational outcomes. Practically, the results indicated that Saudi-listed firms should emphasise employing financial specialists on their boards to boost their value and attain sustainable growth. The study may also guide managers and regulators on the relevance of financial experts in promoting sustainable practices.

1. Introduction

The aim of this study is to examine the relationship between board financial expertise and financial sustainability. The issue is topical because there is an increasing concern that corporate bodies need to extensively engage in sustainability practices to promote their image and legitimacy [1,2]. Unsustainable practices negatively impact the environment, society, and firms’ performance [3,4]. Recent studies emphasise that firm managers need to be supported to factor sustainable issues into their policies to cater for stakeholders’ diverse interests [1,5]. Financial sustainability is one of the dimensions of corporate sustainability, and it is gaining momentum due to its direct link to organisational survival. It is about long-term value creation, generation of stable profit, and growth acceleration to meet the different needs of firms’ stakeholders [2,3]. The literature reported that financial sustainability focuses on the synergy between the growth strategies and financial policies of companies [6,7]. Further, it is emphasised that the absence of this synergy may deteriorate firms’ financial conditions, resulting in unsustainable financial performance [8,9,10]. In this way, several studies argue that sustainable growth determines financial sustainability. Thus, it can be quantified using sustainable growth models [1,11,12,13].

Drawing from agency theory, upper echelons, and resource dependency perspectives, the board of directors’ composition is critical in influencing organisational outcomes [6,14,15,16]. Also, empirical evidence has reported that corporate boards’ quality may be enhanced when composed of directors with accounting and finance knowledge and experience [17,18,19]. These experts understand financial reporting processes, capital market operations, and risk management techniques [20,21,22]. Thus, they are more likely to discharge their oversight responsibilities efficiently, thereby promoting quality decision-making. However, a strand of the literature argues that a board’s financial expertise may be counterproductive because it may lead to cognitive conflicts between financial and non-financial experts in the boardroom [3,19,23]. Such misunderstanding may lead to poor cohesion and reduce decision-making timeliness [24,25]. These instances may weaken board monitoring and resource provision roles and adversely affect performance.

Considering the above review, the literature has established a link between board financial expertise and organisational outcomes. Prior studies in this context mostly used sustainability disclosure and dwelled more on gender and board nationality (e.g., [2,3,10,17,26,27,28,29]). The attention of standard setters and regulatory agencies was drawn to the importance of board financial expertise after the liquidation of several firms across countries [30,31]. As a result, countries enacted legislation mandating corporate organisations to prioritise acquiring financial knowledge in board appointments. It is argued that these directors may shape the advisory and monitoring functions of the board of directors [32,33]. Therefore, the motivation for this research was drawn from the paucity of empirical evidence regarding the nexus between board financial expertise and financial sustainability. The study analysed 970 observations of Saudi non-financial listed companies from 2013 to 2022. The findings showed that a higher proportion of finance specialists on the board may lead to a higher long-term value and mitigate operational risk, resulting in financial sustainability.

Consequently, this study makes substantial contributions to the body of knowledge. It contributes to the board diversity literature by empirically testing how board financial expertise may influence financial sustainability. This may enhance understanding of the effect of financial knowledge in shaping board monitoring and resource provision functions. Also, this paper provides further insight into the factors influencing financial sustainability. Thus, the evidence contributes to the corporate sustainability literature. Practically, the research outcome will interest companies seeking to significantly improve their sustainable performance. This can be achieved by increasing the number of financial specialists on their boards. The outcome may also shape the understanding of diversity advocates and regulators on the roles board financial expertise can play in promoting sustainable practices.

The other parts of this paper cover a short remark on the Saudi institutional structure, followed by the literature review, methodology, analysis, and conclusion.

2. Research Context

This work is based on the Saudi corporate environment because of its exceptional institutional setting and culture. The Saudi corporate sector may interest investors because it has the biggest and the most liquid stock market in the Middle East [34,35]. Also, the country is a major supplier of crude oil to the world market [21,36]. Thus, the corporate governance situation in the country may be useful to investors. Further, the corporate sector in the country is characterised by large family and government shareholdings [21,37]. This highly concentrated ownership may influence corporate boards’ quality and weaken its monitoring capacity, thereby constraining sustainable performance.

The corporate environment in Saudi is experiencing some transformations that may attract foreign direct investment and increase the country’s foreign exchange earnings to accomplish its Vision 2030 [38]. This growth strategy may salvage the nation from greatly depending on crude oil earnings. Hence, corporate sustainability in Saudi firms may greatly interest authorities and policymakers. The country’s corporate governance principles state that companies should structure their boards with at least one director specialising in finance and accounting or having experience in finance-related jobs [38,39,40]. Consequently, examining the relationship between board financial expertise and financial sustainability may provide additional insights into the body of knowledge and policy decisions.

3. Literature Review

3.1. Underpinning Theories

Agency theory is a fundamental framework for understanding how board financial expertise is connected to financial sustainability. According to the agency perspective, managers may use firms’ resources for personal gains because of the separation between ownership and control [38,41]. Therefore, the theory suggests that a board of directors need to be constituted to control this agency conflict. Within this context, studies argue that financial expertise may be an essential mechanism that can shape the board’s monitoring capacity [25,42,43]. Further, it has been emphasised that financial experts may be associated with peculiar competence due to their professional training [20,22]. They have experience in financial preparation, auditing, and accounting estimate techniques [44,45]. The superior knowledge associated with these directors may help monitor management effectively, minimise agency costs, and boost firm value [31,46]. Overall, this theory suggests a positive association between board financial expertise and financial sustainability.

The resource dependency theory also provides a theoretical foundation on how financial expertise is associated with firms’ sustainable performance. The theory concentrates on the strategic value of corporate boards in reducing uncertainty and risk [47,48,49]. This framework suggests that board composition is crucial to firms’ survival because corporate boards provide access to resources, expertise, and advice [38,50]. Within this framework, it is stated that directors with financial knowledge may use their expertise to link organisations with the outside environment and derive legitimacy and recognition [51,52]. In particular, studies reported that financial specialists on the board may critically evaluate and analyse firms’ financial systems to offer strategic advice to management regarding financial planning [40,53]. Such proffered guidance and access to greater resources may enable firms to record higher value, consistently grow, and achieve sustainable performance. Consequently, this theory also predicts a positive relationship between board financial expertise and sustainable performance.

The upper echelons perspective suggests that top managers’ attributes and cognitive powers may determine outcomes in organisational settings [16,54]. According to this view, decision-makers’ work experience and educational background may shape their strategic choices [35,55]. In the same context, studies have pointed out the potential of financial experts on shaping boards’ effectiveness due to their competence and cognitive power. The literature has emphasised that financial expertise is an important human resource that can guide boards in executing complex financing decisions to raise firm value [28,56]. Also, it is argued that boards with more financial experts may have diverse perspectives, leading to quality decision-making that can accelerate sustainable performance [57,58]. Therefore, this theory argues that board financial expertise and financial sustainability are positively related.

3.2. Empirical Review

The liquidation of several firms across countries drew the attention of standard setters and regulatory agencies to the necessity for more financial specialists to be employed for directorship roles in firms [30,31]. Financial experts are required to be recruited because of their unique attributes, capable of strengthening the advisory and monitoring functions of the board of directors [32,33]. In particular, the proponents of the resource dependency view argued that these directors may use their expertise to connect organisations to the outside environment. This connection may facilitate resource access and enable firms to actualise their growth strategy. The agency literature emphasised that since financial expert directors have the basic knowledge of financial management strategies [32], they may be more vigilant and effective in monitoring management policies. In this regard, it is argued that earnings’ management practices and financial misstatements incidence may be lower as the ratio of these directors on board rises because of the sound monitoring of these directors [40,59]. Thus, a lower incidence of managerial entrenchment attitude may reduce management–shareholder conflicts, lower agency costs, and boost performance [40]. From a different viewpoint, financial experts on the board may send a positive message to the stock market. Accordingly, studies found that firms’ stock prices increased after the announcement of the appointment of financial experts on boards [60,61]. Accordingly, empirical studies predict a positive association between board financial expertise and sustainable performance [20,62,63].

On the contrary, a strand of the literature argued that board members with financial knowledge may not necessarily help promote board effectiveness and firm performance [19,23]. Accordingly, some studies contend that there may be heated debates and misunderstandings between financial and non-financial experts in boardroom deliberations due to cognitive differences [24,25]. This disagreement among board members may weaken board monitoring and resource provision roles and adversely affect sustainable performance [64,65]. Importantly, standard setters and regulators in Saudi Arabia have recognised the potential of board financial experts in strengthening firms’ internal governance [38,40]. Specifically, the corporate governance principles state that companies operating in the country should structure their boards with at least one director specialising in finance and accounting or having work experience in finance-related jobs [39]. The code assumed that financial expert directors may positively influence organisational outcomes due to their particular academic knowledge and experience. Considering these explanations, this study suggests that:

H: 

Board financial expertise is positively associated with the sustainable performance of Saudi non-financial listed firms.

4. Research Design

4.1. Data and Sampling Process

The authors gathered the data of Saudi non-financial listed companies covering 2013 to 2022 in order to test the formulated hypotheses. In particular, they utilised the Tadawul (Saudi Stock Exchange) website to gather the firms’ corporate governance information. The firm attribute data were sourced from the yearly financial statements through the Eikon data repository. Using the following criteria, the sample covered 97 companies out of the 223 firms listed in the Saudi non-financial sector. The criteria were developed to enable this study to generate the appropriate data for analysis. Firstly, studies have argued that companies in the financial industry are subjected to several rules and standards, which make their financial reporting unique [66,67]. Thus, 49 banks and insurance firms were excluded due to their unique operating regulations. Also, 41 companies with incomplete information during the selected period were ignored while designing the sample. The firms with incomplete data were those whose annual reports and accounts did not contain the relevant corporate governance information and firm-level data that this study required. Moreover, firms listed after 2013 were equally excluded, resulting in the elimination of 37 companies. Hence, the sample size is shown in

Table 1. Sample coverage.

Sector	No. of Companies	%
Transport	5	5.16
Telecommunications	4	4.12
Retail	4	4.12
Real estate	9	9.28
Materials	39	40.21
Health	5	5.16
Food retailing	4	4.12
Food and beverage	13	13.40
Consumer services	4	4.12
Consumer durables	3	3.09
Capital goods	7	7.22
Total	97	100

, which was purposively designed based on the abovementioned criteria.

4.2. Variables

4.2.1. Dependent Variable

Financial sustainability represents the dependent variable, determined using growth model developed by Higgins [8]. This framework is usually used in finance and accounting studies to quantify financial sustainability. It focuses on the synergy between growth objectives and companies’ financial policies [11,68]. It is emphasised that the absence of this synergy may deteriorate companies’ financial situations, resulting in unsustainable performance [8,9]. Financial sustainability is the ability of a firm to generate positive outcomes that cover costs and guarantee steady growth [9,69,70]. Accordingly, studies argue that financial sustainability and sustainable growth emphasise long-term value accomplishment and steady income generation to satisfy the needs of diverse stakeholders [9,71]. Thus, sustainable growth is a key indicator of financial sustainability [4,69]. The model is shown below:

$$SGR\mathrm{}\left(\%\right)=PM\ast AT\ast FL\ast ERR$$

SGR represents a sustainable growth rate,

PM stands for profit margin = net income after tax/revenue,

AT stands for asset turnover, calculated as revenue/total assets,

FL denotes financial leverage = total debt/total assets,

ERR represents the earnings retention rate, computed as retained earnings/net income after tax.

4.2.2. Explanatory Variable

Board financial expertise (BFE) represents the primary explanatory variable in this work. Following resource dependency and agency perspectives, boards composed of financial experts may be more effective in guiding and monitoring managers [14,31,48,50]. Such improved oversight functions due to the presence of these directors may lead to better decisions and boost firm value, leading to sustainable performance.

4.2.3. Control Variables

Some variables were incorporated for control purposes so as to minimise specification bias and empower the specified model. These variables were board independence (BI), board size (BS), leverage (LEV), firm size (FSIZE), firm age (FA), CEO tenure (CEOT), family ownership (FO), and institutional ownership (IO). Prior studies have shown that boards with a smaller size (BS) and a higher ratio of independent directors (BI) may effectively assist firms in minimising agency costs, leading to sustainable performance [9,11]. Leverage (LEV) may also influence financial sustainability because excessive borrowing may expose firms to higher risks and increase operational costs, thereby constraining sustainable performance [3,68]. Regarding firm size (FSIZE), studies have reported that bigger companies may be associated with different income streams and enjoy lower production costs due to economies of scale [9,11]. Such advantages may enable them to have lower operational costs and a stable financial system, resulting in sustainable performance. Regarding firm age (FA), the literature argues that older firms may be financially sustainable because of their track records and sound internal governance system [3,7]. Prior studies emphasised that CEO tenure (CEOT) may determine organisational outcomes. Following agency theory, a longer term may be detrimental to firms’ performance because as tenure increases, the possibility of self-interest behaviour and agency conflicts may be higher [59,72]. It has been argued that family firms may have high disclosure to signal their governance quality to the external environment [1,73]. Some studies have reported that robust monitoring from institutional investors may mitigate managers’ opportunities attitude and control earning management incidence [74,75]. This enhanced organisational efficiency may lead to higher-quality decisions that may facilitate sustainable performance. The measurements of the study variables are shown in

Table 2. Measurement of the research variables.

	Acronym	Measurement
Dependent variable:
Financial sustainability	FS	$SGR\left(\%\right)=PM\ast AT\ast FL\ast ERR$
Independent variable:
Board financial expertise	BFE	Number of board members with at least a degree in finance or accounting or work experience as a financial manager or an auditor, divided by board size.
Control variables:
Board independence	BI	This was computed as the number of independent directors over all board members.
Board size	BS	The total number of directors.
Leverage	LEV	This was computed as total debts divided by total assets.
Firm size	FSIZE	This was measured as the logarithms of the sampled companies’ total assets.
Firm age	FA	The number of years a firm has been listed on the Saudi exchange.
CEO tenure	CEOT	Number of years the CEO held office.
Family ownership	FO	This study measured family ownership as the percentage of shares held by families.
Institutional ownership	IO	The number of equity shares held by institutions over the total common stock.

.

4.3. Analytical Framework

The collected data comprised observations of 97 firms over multiple years (2013–2022). Therefore, panel data analysis seemed to be more suitable for this study. This methodological approach involves an examination of different units for many periods [76]. The technique is relatively more efficient for several reasons. It lowers the incidence of multicollinearity, yields more data points, and provides efficient estimates [77,78]. The widely applied panel data frameworks are Pooled OLS and fixed-effect and random-effect methods. The Pooled OLS is the basic regression model for analysing a panel dataset. The model estimates the parameters of a linear relationship between a dependent and one or more independent variables [77]. It is argued that in the absence of firm-specific effects, the OLS estimator may be consistent and efficient [79]. On the other hand, the fixed-effect method considers cross-sectional variations in the panel data structure [76,80]. Therefore, the technique accounts for differences across firms in its estimation process. The random-effects framework accommodates unobserved firm effects and makes the error term uncorrelated with the explanatory variables [81,82]. Considering the specific attributes and estimation procedures of these analytical techniques, this paper reported its regression results using all models for comparison purposes. The general forms of these models are given as follows:

$${\gamma }_{it}=\varnothing +\beta {\delta }_{it}{+\epsilon }_{it}$$

(1)

$${\gamma }_{it}=\varnothing +\beta {\delta }_{it}+{\mu }_i{+\epsilon }_{it}$$

(2)

$${\gamma }_{it}=\varnothing +\beta {\delta }_{it}+{\omega }_{it}$$

(3)

where i and t capture the cross-sectional and time-series components, respectively. γ on the left-hand side represents a criterion variable, $\varnothing$ is the regression intercept, ${\delta }_{it}$ is the vector of the explanatory variables, ${\mu }_i$ is the firm-fixed effect, ${\omega }_{it}$ is the composite error term, and the stochastic error term is given as ${\epsilon }_{it}$.

5. Empirical Results and Discussion

The empirical results are presented in this section. These results are classified into descriptive statistics, shown in

Table 3. Descriptive analysis.

Variable	Mean	Std. Dev.	Min.	Max.	Obs.
FS	7.272	13.141	−0.219	61.420	970
BFE	0.538	0.174	0.000	0.745	970
BI	0.416	1.171	0.110	0.749	970
BS	4.472	1.110	3.000	13.000	970
LEV	0.201	0.216	0.000	0.713	970
FSIZE	8.104	0.516	4.670	13.142	970
FA	7.631	3.678	1.000	19.000	970
CEOT	3.538	2.621	1.000	10.000	970
FO	0.102	0.148	0.000	0.821	970
IO	0.029	0.092	0.000	0.556	970

Note: FS = financial sustainability, BFE = board financial expertise, BI = board independence, BS = board size, LEV = leverage, FSIZE = firm size, FA = firm age, CEOT = CEO tenure, FO = family ownership, and IO = institutional ownership. See Table 2 for variables’ definitions.

, followed by a correlation matrix in

Table 4. Correlations.

Variable	VIF	FS	BFE	BI	BS	LEV	FSIZE	FA	CEOT	FO	IO
FS		1.000
BFE	1.16	0.291 ***	1.000
BI	1.33	0.530 ***	0.289 ***	1.000
BS	1.21	−0.414 ***	0.143 ***	0.334 ***	1.000
LEV	1.23	−0.103 ***	−0.083 ***	−0.097 ***	−0.075 **	1.000
FSIZE	1.25	0.005	0.018	−0.013	0.014	0.389 ***	1.000
FA	1.24	−0.024	0.096 ***	−0.057 *	0.021	0.053 *	0.115 ***	1.000
CEOT	1.27	0.124 ***	0.067 **	0.136 ***	0.089 **	0.006	0.024	0.385 ***	1.000
FO	1.05	0.102 ***	0.005	−0.054	0.076 **	0.059 *	−0.027	−0.04 *	0.102 ***	1.000
IO	1.08	0.089	−0.089 ***	0.135 ***	−0.047 **	0.122 ***	0.136 ***	−0.040	−0.087 ***	−0.080 *	1.000

***, **, and * demonstrate significance at 1%, 5%, and 10%, respectively. Note: FS = financial sustainability, BFE = board financial expertise, BI = board independence, BS = board size, LEV = leverage, FSIZE = firm size, FA = firm age, CEOT = CEO tenure, FO = family ownership, and IO = institutional ownership. See Table 2 for variables’ definitions.

. The main regression outcomes using different econometric models are exhibited in

Table 5. Regression results on the effect of board financial expertise on financial sustainability.

Variables	Model 1 OLS Estimator (Robust)	Model 2 Fixed Effects (Robust)	Model 3 Random Effects (Robust)
Constant	39.6958 *** (6.1563)	10.5396 ** (0.9563)	4.6802 *** (1.5919)
BFE	14.5393 *** (2.4984)	2.2495 ** (0.028)	4.3934 *** (2.0306)
BI	33.8349 *** (3.9059)	1.3429 ** (0.5371)	10.6435 (3.1769)
BS	−3.5786 *** (0.3257)	0.5904 *** (0.2057)	−1.5152 *** (0.3566)
LEV	−3.2114 (1.9578)	−0.0464 (2.0359)	−1.4067 (2.5651)
FSIZE	0.9219 ** (0.3991)	0.5187 * (0.2568)	−0.4219 ** (0.1827)
FA	−0.1762 (0.1130)	−0.1190 (0.1263)	0.1921 (0.2110)
CEOT	−0.2875 * (0.1728)	−0.1112 ** (0.0451)	−0.1491 ** (0.0499)
FO	−14.3125 *** (2.4756)	−1.6103 * (0.7817)	−6.8584 ** (2.6481)
IO	1.9449 (2.3137)	2.2038 (1.9971)	1.0021 (3.7917)
Industry dummies	Yes	Yes	Yes
Year dummies	Yes	Yes	Yes
R2	0.4025	0.3368	0.3952
F statistics	66.54	39.17	--
Wald statistics	--	--	43.48
Prob. F statistics/Chi2	0.000	0.008	0.000

***, **, and * demonstrate significance at 1%, 5, and 10%, respectively. Note: BFE = board financial expertise, BI = board independence, BS = board size, LEV = leverage, FSIZE = firm size, FA = firm age, CEOT = CEO tenure, FO = family ownership, and IO = institutional ownership. See Table 2 for variables’ definitions.

. Finally,

Table 6. Regression results on the effect of board financial expertise on financial sustainability (robustness check).

Variables	Model 4 2 SLS (Full Sample)	Model 5 2 SLS (Sub-Sample)
Constant	81.3764 *** (13.5949)	47.0964 *** (6.4377)
BFE	101.5139 *** (35.9589)	49.5747 ** (20.9501)
BI	35.5516 *** (10.1908)	25.7787 *** (6.7219)
BS	2.8243 *** (0.4806)	−3.5662 *** (0.3111)
LEV	−5.0185 (6.2722)	−0.3253 (3.5855)
FSIZE	0.5642 (1.2394)	0.2107 (0.9788)
FA	−0.8433 (0.2849)	−0.1531 (0.1483)
CEOT	−0.8572 * (0.4263)	−0.0148 (0.2239)
FO	−28.6925 *** (0.7817)	−22.1864 *** (5.5699)
IO	10.4349 (8.5743)	3.6160 (3.5869)
R2	0.2311	0.3896
Wald statistics	89.16	66.54
Prob. > Chi2	0.000	0.000

***, **, and * demonstrate significance at 1%, 5%, and 10%, respectively. Note: BFE = board financial expertise, BI = board independence, BS = board size, LEV = leverage, FSIZE = firm size, FA = firm age, CEOT = CEO tenure, FO = family ownership, and IO = institutional ownership. See Table 2 for variables’ definitions.

provides additional analysis for the robustness check.

5.1. Descriptive Results

The variables’ summary statistics are revealed in Table 3. It exhibited large variation across the firms in terms of financial sustainability (FS), which had an average of 7.272 and ranged from −0.2219 to 61.420. This large deviation suggests that some companies are more financially sustainable than others. The board financial expertise (BFE) showed an average of 0.538, implying that 53.8 percent of the board members are financial experts. Board independence (BI) indicated a higher value of 74.9 percent, while board size (BS) suggested an average of approximately 5 directors.

Moreover, the debt ratio (LEV) exhibited 0.201, on average, signifying that debt financing constitutes only 20.1 percent of the firms’ capital structure. The firm size (FSIZE), measured by the logarithms of total assets, showed a higher and lower value of 13.142 and 4.670, respectively. This indicates that the sampled firms are of different sizes in accordance with their fixed-assets investment. Firm age (FA) displayed a maximum of 19 years, with a higher deviation among the firms. The average CEO tenure indicated approximately four years and ranged from one to ten years. Family ownership (FO) displayed an average of 10.2 percent, with a maximum of 82.1 percent across the firms. Finally, institutional shareholding (IO) demonstrated that, on average, 2.9 percent of the firms’ ownership belongs to institutional investors. This evidence revealed that institutional shareholding is relatively lower in Saudi when compared with family ownership.

5.2. Correlations

The correlation matrix of the research variables is presented in Table 4. Based on the outcome, the correlation coefficients of the explanatory variable were lower than 0.80 percent, signifying that multicollinearity did not exist [1,77]. Likewise, the variance inflation factor values (VIF) of the independent variables were not above 10, which further reinforced that the specified model did not suffer from a multicollinearity problem.

5.3. Regression Analysis

Several post-estimation tests were carried out to determine the reliability of the regression outcome generated. Such diagnostic tests included variance inflation factor (VIF), serial correlation, and heteroskedasticity tests. The VIF values are reported in Table 4 and ranged from 1.05 to 1.33, which indicated that the specified model did not suffer from a multicollinearity problem. The serial correlation results revealed significant results (Prob. > F = 0.0000), and the Breusch/Cook test also appeared significant (Prob. > Chi2 = 0.0001). These results imply that the model had heteroskedasticity and serial correlation. In this scenario, the econometric literature advocates that these statistical problems can be corrected by applying clustered standard error commands [83,84,85]. Consequently, this paper applied such command so as to generate reliable and consistent estimates.

The regression results using OLS, fixed, and random effects on the relationship between board financial expertise and financial sustainability are shown in Table 5. The R-squared of the models (1), (2), and (3) denoted that about 40.25, 33.68, and 39.52 percent of the variations in the firms’ financial sustainability were explained by the independent variables. More importantly, the probability of the F statistics and Chi2 of the models appeared significant at 1%, which proved the validity and robustness of the specified models. According to the results, the models suggested a positive association between board financial expertise and financial sustainability. This means that increasing the number of finance specialists on the board will increase sustainable performance, which aligns with prior studies [3,10,28]. The evidence confirmed the predictions of the agency, resource dependency, and upper echelons theories [38,42,47,55]. These theories argue that financial expertise may provide diverse perspectives and innovation that can shape corporate boards’ decision-making quality. Such enhanced efficiency may promote firm value and sustainable performance. This finding implies that companies should structure their boards with more finance specialists to improve sustainable performance.

Regarding the control variables, the results from the models showed that board independence was positively related to sustainable performance. This finding suggests that financial sustainability may rise as the number of independent board members rises. The result emphasised that effective monitoring and better guidance from these directors may encourage management to formulate sound decisions that may yield higher value for sustainable growth [9,11].

However, the board size coefficient appeared negative and significant. This result means that sustainable performance may decline as the number of board members rises. This outcome reinforces the argument that a smaller board size is more entrenched in curtailing agency conflicts due to its intense monitoring [1,25,73]. This superior supervision may compel management to focus on wealth maximisation to boost firm value, leading to sustainable growth. Leverage appeared insignificant in the specified models. The coefficient of firm size was positive and significant, which implies that larger firms may be associated with sustainable performance. The evidence supports the argument that bigger companies are prone to having stable financial systems, which may aid them in being financially sustainable [3,68]. However, the results indicated that firm age was insignificant in the models. The CEOT coefficient displayed a significant positive outcome, meaning that financial sustainability may rise as CEO tenure increases. The finding aligns with prior studies that emphasised that a longer CEO tenure may lead to higher agency conflicts that can harm sustainable performance [59,72].

Conversely, family ownership suggested a negative relationship with financial sustainability. This evidence contradicts prior studies that argue that family companies may be associated with sound internal governance [1,73]. Lastly, institutional ownership appeared insignificant in predicting Saudi firms’ financial sustainability, perhaps due to the lesser percentage of institutional investors in the Saudi corporate sector. This low stake in the firms’ ownership may make them less capable of turning around happenings on the corporate boards in Saudi.

6. Robustness Test

The literature raised concerns about the potential endogeneity and simultaneity in corporate governance attributes [86,87,88,89]. As such, this study performed an additional analysis to confirm the consistency and efficiency of the regression estimates in Table 5. The additional analysis used the two-stage least squares (2SLS) regression, which uses an instrumental variable approach. The analysis is presented in Table 6 and categorised into models 4 and 5. Model 4 was for the entire sample size, while model 5 was a sub-sample analysis. The sub-sample analysis covered 74 companies with a positive financial sustainability index based on Higgins’s model, which the study adopted. Importantly, the results of models 4 and 5 showed that board financial expertise maintained a positive and significant coefficient. This evidence reinforces the earlier finding in Table 5 that as the number of financial specialists rises on the board, financial sustainability may increase. Overall, the results remained consistent using different econometric models.

7. Conclusions

The Saudi economy is a potential investment avenue, being the largest and the most liquid stock market in the Middle East. Also, the country is a major supplier of crude oil to the world market. Further, the country’s corporate sector is characterised by large family and government shareholdings. However, the country’s corporate sector is experiencing some transformations that may increase its foreign exchange earnings to accomplish its Vision 2030. This growth strategy may salvage the nation from greatly depending on crude oil earnings. Importantly, the country’s corporate governance principles state that companies should structure their boards with at least one director specialising in finance and accounting or having experience in finance-related jobs.

Therefore, this paper examined the relationship between board financial expertise and the financial sustainability of Saudi non-financial listed companies. The study sampled data from 97 companies covering 2013 to 2022 and analysed the data using different econometric models. The research findings revealed a strong and positive impact of board financial expertise on sustainable performance. The evidence supports agency framework, resource dependency, and upper echelons theories. These frameworks argue that stringent monitoring, technical advice, and intellectual competence of finance specialists may positively influence organisational outcomes.

Overall, this study makes a significant contribution by empirically testing how board financial expertise may influence financial sustainability. This evidence may enhance understanding of the effect of financial knowledge in shaping board monitoring and resource provision functions. Likewise, the work provided further insight into the factors influencing financial sustainability. Practically, the research outcome implied that companies may significantly improve their sustainable performance by employing a considerable number of finance specialists on their boards. Additionally, the research findings have implications for strengthening corporate governance practices and enhancing managerial efficiency through stringent monitoring and counsel from financial specialists on the board. The outcomes may also shape the understanding of diversity advocates and regulators on the roles board financial expertise can play in promoting sustainable practices. Therefore, achieving corporate sustainability may pave the way for Saudi firms to attract more local and foreign investments, thereby assisting the country in actualising its Vision 2030.

The authors must acknowledge some shortcomings or limitations. In particular, the study concentrated on non-financial companies, so future works should use financial companies to determine if the same outcomes can be generated. Further, upcoming research should employ other sustainable growth models for comparison. Likewise, this work focused on Saudi firms. Thus, a similar study can be undertaken in other developing nations using larger samples to confirm the empirical results. In addition, future studies may introduce an intervening variable in modelling the nexus between board financial expertise and financial sustainability to unveil additional insights regarding this relationship. A dynamic model can also be applied to confirm the findings of this study.