Characteristics of board of directors and financial distress

A Malaysian case

Takiah Mohd Iskandar, Zulridah Mohd Noor, Noraini Omar

    Research output: Contribution to journalArticle

    Abstract

    This paper examines the relationship between the characteristics of boards of directors and the financial distress of companies listed on Bursa Malaysia. The sample consists of 68 companies whose listing status on Bursa Malaysia was being suspended between 2005 and 2009, under the provision of Practice Note 17 (PN17) of the Bursa Malaysia Listing Requirements. The study develops a multinomial logit regression model to test three categories of PN17 listing statuses: re-listed on Bursa Malaysia, remain as PN17, and de-listed from Bursa Malaysia. The model relates the listing status to five characteristics of the boards of directors as independent variables, specifically leadership structure, equity ownership, board involvement, financial literacy and multiple directorships of board members; and four control variables, namely firm size, leverage, return on assets and audit quality. The study expects that the success of PN17 listing outcomes depends on the ability of the board of directors to establish and implement the restructuring plan. The results show that the relisting of PN17 companies is negatively related to financial literacy and equity ownership of the board of directors and positively related to the involvement of the board. The results imply that boards of directors with a lower ownership and financial literacy, but more actively involved, are more capable of overcoming financial difficulties.

    Original languageEnglish
    Pages (from-to)77-88
    Number of pages12
    JournalJurnal Pengurusan
    Volume36
    Publication statusPublished - 2012

    Fingerprint

    Financial distress
    Board of directors
    Malaysia
    Financial literacy
    Equity ownership
    Control variable
    Firm size
    Ownership
    Leverage
    Multinomial logit
    Multiple directorships
    Listed companies
    Audit quality
    Logit regression
    Regression model
    Return on assets

    Keywords

    • Board involvement
    • Board of directors
    • Corporate governance
    • Equity ownership
    • Financial distress
    • Financial literacy

    ASJC Scopus subject areas

    • Business, Management and Accounting (miscellaneous)
    • Accounting
    • Business and International Management

    Cite this

    Iskandar, T. M., Noor, Z. M., & Omar, N. (2012). Characteristics of board of directors and financial distress: A Malaysian case. Jurnal Pengurusan, 36, 77-88.

    Characteristics of board of directors and financial distress : A Malaysian case. / Iskandar, Takiah Mohd; Noor, Zulridah Mohd; Omar, Noraini.

    In: Jurnal Pengurusan, Vol. 36, 2012, p. 77-88.

    Research output: Contribution to journalArticle

    Iskandar, TM, Noor, ZM & Omar, N 2012, 'Characteristics of board of directors and financial distress: A Malaysian case', Jurnal Pengurusan, vol. 36, pp. 77-88.
    Iskandar, Takiah Mohd ; Noor, Zulridah Mohd ; Omar, Noraini. / Characteristics of board of directors and financial distress : A Malaysian case. In: Jurnal Pengurusan. 2012 ; Vol. 36. pp. 77-88.
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