The Impact of Artificial Intelligence on the Relationship between Corporate Governance and Firm Financial Performance: An Empirical Study on Three Different Sectors of Pakistan

Abstract

The influence of artificial intelligence on the economy and industry has expanded from time to time. AI technology has significantly innovated and impacted company operations and management which is playing a crucial role in enhancing corporate governance. Based on in-depth analysis of the theoretical mechanism of artificial intelligence which is affecting corporate governance is based on the balanced panel data of Pakistani listed companies from 2018 till 2023 which covers three key sectors –ie- banking, IT and refinery. This paper examines how artificial intelligence impacts corporate governance and provides insight knowledge for decision making and control management. It explores the effect of Artificial Intelligence on the association between corporate governance variables -ie- board size (BS), board meetings (BM),  no. of women on the board & CEO duality and firm financial performance which are specifically ROA and ROE. The findings indicate that board size (BS) and the no. of women on the board have positively impact both ROA and ROE while the impact of board meetings and CEO duality are mixed. AI is found to play a significant moderating role which enhances the positive effects of board size on financial performance but also highlights the mixed impact of CEO duality, no. of women in board and board meetings. These insights underscore the importance of integrating AI thoughtfully into corporate governance practices to optimize financial outcomes.