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Does the board of directors influence the likelihood and resolution of financial distress?

Author

Listed:
  • Khaldoon Ahmad Al Daoud
  • Ola Kamal Bani Yaseen

Abstract

The current study investigated the effect of board of directors (i.e., CEO duality, independence, multiple directorships, politically connected directors, and size) on the financial distress measured using Altman's (1968) Z-scores model as a proxy for a firm's financial distress. A panel dataset of 260 firm-year observations from Jordanian industrial corporations listed on the Amman Stock Exchange from 2014 to 2018 was investigated. Using panel mixed-effect regression, the results show that board size and CEO duality have a significant impact in mitigating a firm's financial distress, while board independence, multiple directorships, and politically connected directors with financial distress were not statistically significantly associated with financial distress. These results indicate that a large board size accompanied by CEO duality leads to better oversight, reducing a firm's financial distress. The current study supports stewardship theory arguments that suggest that CEO duality improves the process of decision-making.

Suggested Citation

  • Khaldoon Ahmad Al Daoud & Ola Kamal Bani Yaseen, 2024. "Does the board of directors influence the likelihood and resolution of financial distress?," International Journal of Managerial and Financial Accounting, Inderscience Enterprises Ltd, vol. 16(2), pages 229-248.
    • Handle: RePEc:ids:injmfa:v:16:y:2024:i:2:p:229-248
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