Nexus Among Financial Risks and Financial Performance: A Moderating Role of Corporate Governance

The research investigates the relationship between financial risk, corporate governance, and their impact on bank financial performance in Pakistan through both conventional and Islamic banking systems. The study uses Tobin's Q to evaluate financial performance while assessing financial risk through various measures that include non-performing loans to total assets and other indicators. The research investigates corporate governance through three indicators, which are board size, audit committee existence, and board member independence. The study uses panel data, which includes yearly bank reports from eleven banks, to assess how six conventional banks and five Islamic banks performed financially from 2010 to 2023. The study shows through basic statistical methods and regression analysis that market value increases when lenders make loans that exceed their total deposit amounts. The results show that improvements in financial intermediation lead to better performance by institutions. The research shows that banks experience severe operational problems when their non-performing loans increase because rising credit risk turns into a major obstacle. Corporate governance functions as the fundamental element that establishes how banks will perform financially. The bank system achieves improved financial performance through the combination of independent board members and effective audit committees. The banking system needs both transparent operations and effective supervisory mechanisms with accountability frameworks to ensure its operational efficiency. The research shows that Pakistan needs to improve its governance systems while maintaining strict financial risk control to achieve better efficiency and effectiveness in its dual banking operations. The study improves current academic research by collecting real-world data that demonstrates how financial risk and governance structures influence banking performance in developing nations. The research provides applicable solutions to the financial sector, which regulators and banking professionals can use to create stability and long-term growth.