The Role of Financial Risk Management in Enhancing Corporate Financial Stability During Economic Crises

Abstract

This study investigates the role of financial risk management (FRM) in enhancing corporate financial stability during economic crises, focusing on publicly listed companies in Indonesia. Using a quantitative approach, data was collected from 120 companies across various sectors, including manufacturing, natural resources, finance, and consumer goods, over a five-year period. The study examines key FRM practices such as hedging, liquidity management, and debt restructuring, assessing their impact on financial stability metrics like Return on Assets (ROA), Return on Equity (ROE), and Debt-to-Equity Ratio (D/E). The findings reveal that companies with robust FRM practices demonstrated greater resilience during economic downturns, maintaining higher profitability and lower leverage compared to firms with minimal FRM frameworks. These results support modern risk management theories, highlighting the effectiveness of FRM in mitigating financial risks in emerging markets. This research provides practical insights for corporate decision-makers and policymakers, advocating for the adoption of comprehensive FRM practices to enhance financial stability. Future research could explore sector-specific FRM challenges and the role of digital tools in optimizing risk management practices in volatile environments.