IDEAS home Printed from https://ideas.repec.org/a/eco/journ1/2023-06-19.html
   My bibliography  Save this article

The Impact of Corporate Governance Attributes on Financial Distress among the Listed Firms in Pharmaceuticals Industry of Bangladesh

Author

Listed:
  • Mst. Maksuda Begum

    (Department of Accounting and Information Systems, Jagannath University, Dhaka, Bangladesh.)

  • Niluthpaul Sarker

    (Department of Accounting and Information Systems, Jagannath University, Dhaka, Bangladesh.)

  • Shamsun Nahar

    (Department of Accounting and Information Systems, Jagannath University, Dhaka, Bangladesh.)

Abstract

This paper investigates the relationship between corporate governance and the likelihood of financial distress. To evaluate the impact of corporate governance on financial distress, a multiple regression model and longitudinal panel data are used. Corporate governance is determined by the board of directors, audit committee, and ownership structure, whereas the Altman Z-score is used to indicate financial distress. The findings imply that financial distress is influenced by corporate governance variables (board independence, auditor independence, auditor opinion, sponsor directors ownership, and foreign shareholders), and firm-level variables (sales growth, performance, liquidity, firm size)). From an academic standpoint, this paper adds to our understanding of the association between corporate governance practices and the risk of financial distress in emerging markets like Bangladesh. The findings may encourage Bangladeshi listed companies to follow and implement good corporate governance practices, increasing investor, regulator, and stakeholder confidence.

Suggested Citation

  • Mst. Maksuda Begum & Niluthpaul Sarker & Shamsun Nahar, 2023. "The Impact of Corporate Governance Attributes on Financial Distress among the Listed Firms in Pharmaceuticals Industry of Bangladesh," International Journal of Economics and Financial Issues, Econjournals, vol. 13(6), pages 155-167, November.
    • Handle: RePEc:eco:journ1:2023-06-19
    as

    Download full text from publisher

    File URL: https://www.econjournals.com/index.php/ijefi/article/download/15096/7631
    Download Restriction: no
    File URL: https://www.econjournals.com/index.php/ijefi/article/view/15096
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Allan Hodgson & Suntharee Lhaopadchan & Sitapa Buakes, 2011. "How informative is the Thai corporate governance index? A financial approach," International Journal of Accounting & Information Management, Emerald Group Publishing Limited, vol. 19(1), pages 53-79, March.
    2. Simpson, W. Gary & Gleason, Anne E., 1999. "Board structure, ownership, and financial distress in banking firms," International Review of Economics & Finance, Elsevier, vol. 8(3), pages 281-292, September.
    3. Tania Hamid & Farzana Akter & Naharin Rab, 2016. "Prediction of Financial Distress of Non-Bank Financial Institutions of Bangladesh using Altman’s Z Score Model," International Journal of Business and Management, Canadian Center of Science and Education, vol. 11(12), pages 261-261, November.
    4. Liang, Deron & Tsai, Chih-Fong & Lu, Hung-Yuan (Richard) & Chang, Li-Shin, 2020. "Combining corporate governance indicators with stacking ensembles for financial distress prediction," Journal of Business Research, Elsevier, vol. 120(C), pages 137-146.
    5. Charbel Salloum & Georges Azzi & Elias Gebrayel, 2014. "Audit Committee and Financial Distress in the Middle East Context: Evidence of the Lebanese Financial Institutions," Post-Print hal-01370168, HAL.
    6. Gales, Lawrence M. & Kesner, Idalene F., 1994. "An analysis of board of director size and composition in bankrupt organizations," Journal of Business Research, Elsevier, vol. 30(3), pages 271-282, July.
    7. Gongmeng Chen & Michael Firth & Jeong-Bon Kim, 2002. "The use of accounting information for the valuation of dual-class shares listed on China's stock markets," Accounting and Business Research, Taylor & Francis Journals, vol. 32(3), pages 123-131.
    8. Mohammad Hudaib & T.E. Cooke, 2005. "The Impact of Managing Director Changes and Financial Distress on Audit Qualification and Auditor Switching," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(9-10), pages 1703-1739.
    9. Manzaneque, Montserrat & Merino, Elena & Priego, Alba María, 2016. "The role of institutional shareholders as owners and directors and the financial distress likelihood. Evidence from a concentrated ownership context," European Management Journal, Elsevier, vol. 34(4), pages 439-451.
    10. Mark S. Beasley & Steven E. Salterio, 2001. "The Relationship between Board Characteristics and Voluntary Improvements in Audit Committee Composition and Experience," Contemporary Accounting Research, John Wiley & Sons, vol. 18(4), pages 539-570, December.
    11. Arga Fajar Santosa & Linda Kusumaning Wedari, 2007. "Analisis Faktor-Faktor yang Mempengaruhi Kecenderungan Penerimaan Opini Audit Going Concern," Jurnal Akuntansi dan Auditing Indonesia, Accounting Department, Faculty of Business and Economics, Universitas Islam Indonesia, vol. 11(2).
    12. Manzaneque, Montserrat & Priego, Alba María & Merino, Elena, 2016. "Corporate governance effect on financial distress likelihood: Evidence from Spain," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 19(1), pages 111-121.
    13. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    14. Pincus, Karen & Rusbarsky, Mark & Wong, Jilnaught, 1989. "Voluntary formation of corporate audit committees among NASDAQ firms," Journal of Accounting and Public Policy, Elsevier, vol. 8(4), pages 239-265.
    15. Gul, Ferdinand A. & Kim, Jeong-Bon & Qiu, Annie A., 2010. "Ownership concentration, foreign shareholding, audit quality, and stock price synchronicity: Evidence from China," Journal of Financial Economics, Elsevier, vol. 95(3), pages 425-442, March.
    16. Matthew A. Rutherford & Ann K. Buchholtz, 2007. "Investigating the Relationship Between Board Characteristics and Board Information," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(4), pages 576-584, July.
    17. Han Donker & Bernard Santen & Saif Zahir, 2009. "Ownership structure and the likelihood of financial distress in the Netherlands," Applied Financial Economics, Taylor & Francis Journals, vol. 19(21), pages 1687-1696.
    18. Raghuram G. Rajan & Luigi Zingales, 1998. "Power in a Theory of the Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 113(2), pages 387-432.
    19. Mangena, Musa & Chamisa, Eddie, 2008. "Corporate governance and incidences of listing suspension by the JSE Securities Exchange of South Africa: An empirical analysis," The International Journal of Accounting, Elsevier, vol. 43(1), pages 28-44, March.
    20. Donald C. Hambrick & Richard A. D'Aveni, 1992. "Top Team Deterioration as Part of the Downward Spiral of Large Corporate Bankruptcies," Management Science, INFORMS, vol. 38(10), pages 1445-1466, October.
    21. Tsun‐Siou Lee & Yin‐Hua Yeh, 2004. "Corporate Governance and Financial Distress: evidence from Taiwan," Corporate Governance: An International Review, Wiley Blackwell, vol. 12(3), pages 378-388, July.
    22. Xie, Biao & Davidson, Wallace III & DaDalt, Peter J., 2003. "Earnings management and corporate governance: the role of the board and the audit committee," Journal of Corporate Finance, Elsevier, vol. 9(3), pages 295-316, June.
    23. Mohammad Hudaib & T.E. Cooke, 2005. "The Impact of Managing Director Changes and Financial Distress on Audit Qualification and Auditor Switching," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(9‐10), pages 1703-1739, November.
    24. Yenn‐Ru Chen, 2008. "Corporate Governance and Cash Holdings: Listed New Economy versus Old Economy Firms," Corporate Governance: An International Review, Wiley Blackwell, vol. 16(5), pages 430-442, September.
    25. Arga Fajar Santosa & Linda Kusumaning Wedari, 2007. "Analisis Faktor-Faktor Yang Mempengaruhi Kecenderungan Penerimaan Opini Audit Going Concern," Jurnal Akuntansi dan Auditing Indonesia, Accounting Department, Faculty of Business and Economics, Universitas Islam Indonesia, vol. 11(2), pages 141-158, Desember.
    26. Chau, Gerald K. & Gray, Sidney J., 2002. "Ownership structure and corporate voluntary disclosure in Hong Kong and Singapore," The International Journal of Accounting, Elsevier, vol. 37(2), pages 247-265.
    27. Yen-Hsien Lee & Ya-Ling Huang & Shiuh-Sheng Hsu & Chien-Han Hung, 2013. "Measuring the Efficiency and the Effect of Corporate Governance on the Biotechnology and Medical Equipment Industries in Taiwan," International Journal of Economics and Financial Issues, Econjournals, vol. 3(3), pages 662-672.
    28. Nawang Kalbuana & Muhamad Taqi & Lia Uzliawati & Dadan Ramdhani, 2022. "The Effect of Profitability, Board Size, Woman on Boards, and Political Connection on Financial Distress Conditions," Cogent Business & Management, Taylor & Francis Journals, vol. 9(1), pages 2142997-214, December.
    29. Gerald Vinten & Connie Lee, 1993. "Audit Committees and Corporate Control," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 8(3), pages 1-1, March.
    30. Omar Al Farooque & Tony Van Zijl & Keitha Dunstan & AKM Waresul Karim, 2007. "Corporate Governance in Bangladesh: Link between Ownership and Financial Performance," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(6), pages 1453-1468, November.
    31. Mahfoudh Hussein Mgammal, 2022. "Appraisal study on board diversity: Review and agenda for future research," Cogent Business & Management, Taylor & Francis Journals, vol. 9(1), pages 2121241-212, December.
    32. Jerry W. Lin & June F. Li & Joon S. Yang, 2006. "The effect of audit committee performance on earnings quality," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 21(9), pages 921-933, December.
    33. David A. Carter & Betty J. Simkins & W. Gary Simpson, 2003. "Corporate Governance, Board Diversity, and Firm Value," The Financial Review, Eastern Finance Association, vol. 38(1), pages 33-53, February.
    34. Dengjun Zhang & Yuquan Cang, 2021. "Ownership concentration, foreign ownership and auditing: evidence from SMEs in Latin America," Pacific Accounting Review, Emerald Group Publishing Limited, vol. 33(3), pages 301-321, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sumaira Ashraf & Elisabete G. S. Félix & Zélia Serrasqueiro, 2022. "Does board committee independence affect financial distress likelihood? A comparison of China with the UK," Asia Pacific Journal of Management, Springer, vol. 39(2), pages 723-761, June.
    2. Bravo-Urquiza, Francisco & Moreno-Ureba, Elena, 2021. "Does compliance with corporate governance codes help to mitigate financial distress?," Research in International Business and Finance, Elsevier, vol. 55(C).
    3. Ahsan Habib & Mabel D' Costa & Hedy Jiaying Huang & Md. Borhan Uddin Bhuiyan & Li Sun, 2020. "Determinants and consequences of financial distress: review of the empirical literature," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(S1), pages 1023-1075, April.
    4. Manzaneque, Montserrat & Priego, Alba María & Merino, Elena, 2016. "Corporate governance effect on financial distress likelihood: Evidence from Spain," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 19(1), pages 111-121.
    5. Miglani, Seema & Ahmed, Kamran & Henry, Darren, 2015. "Voluntary corporate governance structure and financial distress: Evidence from Australia," Journal of Contemporary Accounting and Economics, Elsevier, vol. 11(1), pages 18-30.
    6. Muqaddas Khalid & Qaisar Abbas & Fizzah Malik & Shahid Ali, 2020. "Impact of audit committee attributes on financial distress: Evidence from Pakistan," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 7(01), pages 1-19, March.
    7. Alberto Tron & Maurizio Dallocchio & Salvatore Ferri & Federico Colantoni, 2023. "Corporate governance and financial distress: lessons learned from an unconventional approach," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 27(2), pages 425-456, June.
    8. Hsu, Hwa-Hsien & Wu, Chloe Yu-Hsuan, 2014. "Board composition, grey directors and corporate failure in the UK," The British Accounting Review, Elsevier, vol. 46(3), pages 215-227.
    9. DeFond, Mark & Zhang, Jieying, 2014. "A review of archival auditing research," Journal of Accounting and Economics, Elsevier, vol. 58(2), pages 275-326.
    10. Lin, Tse-Chun & Liu, Jinyu & Ni, Xiaoran, 2022. "Foreign bank entry deregulation and stock market stability: Evidence from staggered regulatory changes," Journal of Empirical Finance, Elsevier, vol. 69(C), pages 185-207.
    11. Ines Gharbi & Mounira Hamed‐Sidhom & Khaled Hussainey & Janet Ganouati, 2021. "Religiosity and financial distress in U.S. firms," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 3902-3915, July.
    12. Renee B. Adams & Benjamin E. Hermalin & Michael S. Weisbach, 2010. "The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey," Journal of Economic Literature, American Economic Association, vol. 48(1), pages 58-107, March.
    13. George Drogalas & Michail Nerantzidis & Dimitrios Mitskinis & Ioannis Tampakoudis, 2021. "The relationship between audit fees and audit committee characteristics: evidence from the Athens Stock Exchange," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 18(1), pages 24-41, March.
    14. Sierra-García, Laura & Gambetta, Nicolás & García-Benau, María A. & Orta-Pérez, Manuel, 2019. "Understanding the determinants of the magnitude of entity-level risk and account-level risk key audit matters: The case of the United Kingdom," The British Accounting Review, Elsevier, vol. 51(3), pages 227-240.
    15. Cuadrado-Ballesteros, Beatriz & Rodríguez-Ariza, Lázaro & García-Sánchez, Isabel-María, 2015. "The role of independent directors at family firms in relation to corporate social responsibility disclosures," International Business Review, Elsevier, vol. 24(5), pages 890-901.
    16. Puławska Karolina & Dobija Dorota & Piotrowska Katarzyna & Kravchenko Grygorii, 2021. "Audit Committee Formation: The Case of Poland," Journal of Management and Business Administration. Central Europe, Sciendo, vol. 29(2), pages 169-212, June.
    17. Chan, Chia-Ying & Chou, De-Wai & Lin, Jane-Raung & Liu, Feng-Ying, 2016. "The role of corporate governance in forecasting bankruptcy: Pre- and post-SOX enactment," The North American Journal of Economics and Finance, Elsevier, vol. 35(C), pages 166-188.
    18. Naeem Tabassum & Satwinder Singh, 2020. "Corporate Governance and Organisational Performance," Springer Books, Springer, number 978-3-030-48527-6, September.
    19. Sunaina Kanojia & Shasta Gupta, 2023. "Bankruptcy in Indian context: perspectives from corporate governance," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 27(2), pages 505-545, June.
    20. Aysegul ERTUGRUL, 2023. "Investigation of the Relationship between Corporate Governance and Capital Structure in Insurance Companies with Panel Regression Analysis," Journal of BRSA Banking and Financial Markets, Banking Regulation and Supervision Agency, vol. 17(1), pages 107-130.

    More about this item

    Keywords

    Corporate Governance; Board of Directors; Audit Committee; Ownership Structure; Financial Distress;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General
    • G1 - Financial Economics - - General Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G4 - Financial Economics - - Behavioral Finance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eco:journ1:2023-06-19. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ilhan Ozturk (email available below). General contact details of provider: http://www.econjournals.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.