The relationship between risk-taking and firm value: does earnings management matter? Evidence from an emerging context

This study examines the effect of risk taking on firm value as well as the effect of risk taking on earnings management in Saudi Arabia.In addition, this study investigates the moderating effect of earnings management on the relationship between risk taking and firm value.We analyzed a sample of nonfinancial firms listed in the Saudi Stock Exchange (Tadawul).The study sample consists of 1008 firm-years observations during the period from 2008 to 2019.The results showed that risk-taking activities are positively valued by market participants and correlated with higher earnings management.In addition, the results indicated that earnings management moderates the positive relationship between risk taking and firm value.These findings are important for business organizations which should be aware that more opaque financial information, higher information asymmetry and lower firm value are likely to be the outcomes when managers engage in risky investment decisions.Governments and regulators should not ignore the negative implications of risk taking that require strengthening firms' oversight and corporate governance mechanisms.