Board structure and financial distress in Brazilian firms

Abstract

Purpose The purpose of this paper is to investigate what board characteristics affect companies in periods of financial distress (FD) among non-financial Brazilian firms and examine which model best fits to predict FD. Design/methodology/approach The sample comprises data from 2010 to 2016 of the non-financial Brazilian firms listed on the Brazilian Stock Exchange. To measure this relationship, a conditional logistic regression is performed. Findings A U-shaped relationship between the size of the board of directors (BD) and FD is found in all models, indicating an optimal number of six members in the BD during the period of FD. However, board characteristics (related to composition and directors’ independence) are insufficient to align the shareholders’ interests and unsuitable for avoiding or even reducing FD in firms when other factors are neglected. Furthermore, the results reveal what variables provide the best-fitting models to predict FD. Originality/value To the best of the authors’ knowledge, this is the first study that investigates how the composition of the BD affects the FD likelihood in the Brazilian context. The findings are potentially of interest to researchers and practitioners since this paper contributes to the growing literature on the influence of corporate governance mechanisms in periods of FD and the understanding of its prediction models.

Kesulitan Keuangan: Efek Struktur Kepemilikan, Karakteristik Dewan Direksi, dan Indeks Tata Kelola Perusahaan

“…Ukuran dewan direksi yang kecil sering terjadi kondisi kesulitan keuangan, karena memiliki tingkat risiko yang lebih tinggi (Candradewi & Rahyuda, 2021;Mariano et al, 2019). Ukuran dewan direksi juga membantu mencapai target daripada valuasi perusahaan, karena mempunyai kekuasaan dalam mengontrol pemegang saham (Freitas Cardoso et al, 2019).…”

“…Independensi dewan dapat membantu mengambil keputusan yang lebih objektif dan memimpin kinerja perusahaan ke arah yang lebih baik (Mohd Ali & Mohd Nasir, 2018). Peran dewan independen dalam perusahaan membantu memonitor para manajer untuk meningkatkan nilai perusahaan (Freitas Cardoso et al, 2019). Demikian juga dengan Khurshid et al (2018), mengatakan bahwa direksi independen meningkatkan kualitas pengambilan keputusan dan mengurangi risiko konflik antar kepentingan.…”

“…), FreitasCardoso et al (2019),Khurshid et al (2018),Manzaneque et al (2016),Mariano et al (2019), Munene et al (2020), Ud-Din et al (2020) ditemukan pengaruh negatif yang signifikan dari ukuran dewan direksi terhadap kesulitan keuangan. Berbeda dengan pendapat dari Hassan Jamal dan Ali Shah (2017), Jodjana et al (2021), Munene dan Ndegwa (2021) yang menemukan pengaruh positif yang signifikan dari ukuran dewan direksi terhadap kesulitan keuangan.…”

Boards of directors in BRIC countries: A review of empirical studies

“…The first regulation is "Document No. 18", issued on 19 October, 2013, which prohibits state officials from holding any positions in enterprises [Freitas Cardoso, Peixoto, Barboza, 2019]. It influences independent academic directors indirectly since many of them work in state universities.…”

The Effect of Board and Ownership Structure on the Possibility of Financial Distress

“…The corporate board structure can also be used to address agency problems (Manzaneque et al, 2016). Previous research found that the proportion of independent commissioners can reduce the possibility of financial distress because one of the board of commissioners' duty is to control the potential for opportunism made by management, hence this can reduce agency problems (Freitas Cardoso, Peixoto, & Barboza, 2019;Hui & Jing-jing, 2008;Li et al, 2020;Manzaneque et al, 2016;Salloum et al, 2013). However, Cinantya and Merkusiwati (2015) and Miglani et al (2015) found that the number of independent commissioners can actually increase the possibility of financial distress because often times, independent commissioners have a lack of independence, so the monitoring of the performance and behavior of company's management becomes weak.…”