Abstract
Purpose: The study aims to assess the potential impacts that the different attributes of corporate governance like the ownership structure and composition of the board on the probability of the listed firms in the UK falling into financial distress. Approach/Methodology/Design: A quantitative methodology with a positivist paradigm and deductive reasoning were employed to collect data from 100 UK-based listed incorporation using FAME-A and BoardEx databases. Moreover, a longitudinal approach was used to collect data from 2014-2019 and sort it into a panel dataset, which was then analyzed using different statistical analysis approaches including pool ordinary least square regression analysis, Pearson’s correlation, and descriptive statistics by using STATA statistical analysis tool. Findings: The findings indicate that certain components of the composition of the board have a substantial effect on a company’s probability to fall into financial distress; for instance, the board size, the board size, board independence, and the independence of the audit committee have a significant negative implication on the selected companies’ probability to fall into financial distress. Similarly, some ownership structure components like institutional ownership and shareholder’s ownership have significant negative implications on the firm’s likelihood of financial distress, while audit committee size and the extent of ownership held by the management show an insignificant implication on the selected companies’ probability to fall into financial distress. Originality/value: The study also highlighted certain limitations and provided recommendations to future researchers to overcome these limitations in the future and reach more informed findings.
Highlights
Corporate governance refers to such policies and practices that help in the resolution of agency-related issues between the companies and their corresponding shareholders, which comprises of the internal system of controls, corporate decision making, and externalities like brand reputation, corporate value, and interaction with stakeholders (Ntim, 2017)
The firm ownership structure refers to the extent of ownership represented by different types of shareholders in an organization, for Journal of Advanced Research in Economics and Administrative Sciences https://bcsdjournals.com/index.php/jareas
The lowest minimum value is attributed to the return on assets, i.e., -64.08, which depicts that the data has been collected from companies that have encountered financial distress from 2014 to 2019
Summary
Corporate governance refers to such policies and practices that help in the resolution of agency-related issues between the companies and their corresponding shareholders, which comprises of the internal system of controls, corporate decision making, and externalities like brand reputation, corporate value, and interaction with stakeholders (Ntim, 2017). There are lots of factors that can cause a firm to experience financial distress condition; the corporate governance structure and practices of an organization holds paramount status in either bringing prosperity and distress condition for a corporation (Udin et al, 2017); for instance, an aggressive attitude of the management, lack of proper oversight and supervision from the board of directors and an ineffective ownership structure of an organization can bring negative implications on its financial performance. It is provided that the high prevalence of globalization caused increased competition among the businesses and it becomes highly essential for corporations to have a competitive board of directors, who have the required competencies and experiences to help the corporation stand out in the market Such an advantage can be achieved by ensuring an effective composition of the board in terms of the selection of qualified, independent, and devoted members to the board of directors (Şener et al, 2011)
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