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

Authors: Khaldoon Ahmad Al Daoud; Ola Kamal Bani Yaseen

Addresses: Department of Accounting, Faculty of Business, Yarmouk University, Jordan ' Yarmouk University, Irbid, Jordan

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.

Keywords: board of directors; Altman's Z score; financial distress; Jordan.

DOI: 10.1504/IJMFA.2024.137625

International Journal of Managerial and Financial Accounting, 2024 Vol.16 No.2, pp.229 - 248

Received: 11 Jun 2022
Accepted: 30 Dec 2022
Published online: 02 Apr 2024 *