Abstract

Good corporate governance companies are associated with superior financial performance. The better the governance practice of companies the better the performance and the lower probability of financial distress. This chapter examines whether there is any significant difference in probability of financial distress of companies with good corporate governance and weak corporate governance. Top-ranked MSWG companies representing good quality of corporate governance practices and non-ranked companies representing weak or poor quality of corporate governance practices. Probability of financial distress is measured using Altman Z-score. Lower probability of financial distress is found in the good corporate governance companies. However, it was found that there is no significant difference between good and weak companies in their categories of financial distress. This reveals that whether a firm has high or low quality of corporate governance, the chances that the firm being predicted as distress, healthy or grey area is almost the same regardless of their corporate governance practice.

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