Impact of Financial Risk on Financial Soundness: Analyzing the Moderating Roles of Managerial Proactiveness and the Independent Director Mechanism

This study examines the effect of corporate financial risk on financial soundness, based on a sample of Chinese listed companies from 2019 to 2023, with the growing importance of the software and information technology services industry. The moderating roles of the independent director mechanism and managerial proactiveness are further explored in the present study. The results indicate that the interaction between financial risk and the proportion of independent directors and that between managerial proactiveness and independent directors significantly weaken financial soundness. However, the three-way interaction among financial risk, independent directors, and managerial proactiveness significantly enhances financial soundness when managerial proactiveness remains moderate rather than excessive. Heterogeneity analysis further shows that at the lowest level of managerial proactiveness, this three-way interaction strengthens financial soundness in dual-role firms and non-state-owned enterprises. These findings offer important policy and managerial implications for improving Chinese corporate governance.