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The IUP Journal of Corporate Governance

Impact of Corporate Board Characteristics on Financial Distress of Firms in India: A Sectoral Analysis+

Article Details

Pub. Date	: Aprill, 2022
Product Name	: The IUP Journal of Corporate Governance
Product Type	: Article
Product Code	: IJCG010422
Author Name	Pallavi Julasaria and Kumarjit Mandal
Availability	: YES
Subject/Domain	: Management
Download Format	: PDF Format
No. of Pages	: 14

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Abstract

Financial distress refers to the inability of firms to fulfill their debt obligations. This paper studies the impact of certain corporate governance measures or board characteristics on the probability of financial distress in various corporate sectors (manufacturing and non-manufacturing) in India. The higher the institutional ownership, the lower is the financial distress for the majority of the sectors, except telecom where firms having higher institutional ownership are found to be more financially distressed. Higher managerial ownership leads to less financial distress in the consumer and transport equipment sector. Measures like board size, number of board meetings, and commissioner's proportion are found to have a different impact on the probability of financial distress in diverse sectors. It has been observed that they have a positive influence on some sectors and a negative influence on others. So overall, a sectoral difference was observed in the impact of various board characteristics on the financial distress of firms in India.

Introduction

Corporate governance plays an important role in the performance of firms in both developed and developing countries. Successful firms in multiple sectors around the globe are characterized by good corporate governance. Manufacturing, banking, and several other sectors across the world are facing challenges in corporate governance. The art of directing and controlling an organization by balancing the needs of its various stakeholders often involves resolving internal conflicts of interest between various stakeholders and ensuring that the organization is well managed. This implies that the processes, procedures, and policies are implemented keeping in mind the principles of transparency and accountability. This entire course of action is what is known as Corporate Governance (CG). Two important aspects of CG must be kept in mind throughout-Firstly, organizations have a sense of responsibility towardsCorporate governance plays an important role in the performance of firms in both developed and developing countries. Successful firms in multiple sectors around the globe are characterized by good corporate governance. Manufacturing, banking, and several other sectors across the world are facing challenges in corporate governance. The art of directing and controlling an organization by balancing the needs of its various stakeholders often involves resolving internal conflicts of interest between various stakeholders and ensuring that the organization is well managed. This implies that the processes, procedures, and policies are implemented keeping in mind the principles of transparency and accountability. This entire course of action is what is known as Corporate Governance (CG). Two important aspects of CG must be kept in mind throughout-Firstly, organizations have a sense of responsibility towards

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