The Impact of CFO Risk-Taking Behaviour on Corporate Financial Performance: Evidence from the Industrial, Energy, and Petrochemical Sectors in Gulf Cooperation Council (GCC) Countries
Abstract
Background: The Chief Financial Officer (CFO) has become a central strategic actor in capital-intensive firms; however, little evidence links CFO risk-taking behaviour to firm performance outside developed markets. This study examines how CFO risk-taking affects corporate financial performance in the Industrial, Energy and Petrochemical sectors of the Gulf Cooperation Council (GCC) countries. Methods: Using 260 firm-year observations (2015–2024) from 26 listed firms, this study measures CFO risk-taking through financial leverage, capital expenditure intensity, earnings volatility, and cash flow volatility, and firm performance through Return on Assets (ROA), Return on Equity (ROE), and Earnings Per Share (EPS). Panel Fixed-Effects regression and a Vector Autoregression (VAR) model are used to estimate contemporaneous and dynamic relationships, guided by Agency Theory, Upper Echelons Theory and Prospect Theory. Results: CFO risk-taking proxies are significantly associated with ROA: leverage and cash flow volatility reduce ROA, while earnings volatility and capital expenditure raise it. The ROE model is a robust null finding, and EPS evidence is limited to earnings volatility. The VAR results indicate time-varying, exploratory, and dynamic relationships between risk-taking and performance. Conclusions: This study contributes to the literature in three ways: it shifts the analytical focus from the widely studied CEO to the increasingly influential CFO; it provides the first large-scale empirical evidence on CFO risk-taking for the under-researched GCC region; and it operationalises CFO risk-taking through a finer set of proxies than prior work. The findings imply that GCC boards and investors should treat financial leverage and cash flow stability as behavioural risk indicators and that regulators may benefit from encouraging more granular CFO-level risk disclosure.