Board Characteristics and Financial Distress: Empirical Evidence from Sri Lanka

Abstract

This paper examines the impact of board characteristics on the financial distress of listed companies in Sri Lanka from 2019 to 2021. Panel regression analysis was employed, and 36 listed companies representing the consumer service sector in Sri Lanka were selected as the sample. This research focuses on five aspects of board characteristics consisting of board size, board composition, CEO duality, board meetings, and directors' ownership while financial distress was measured using Altman's Z score model. Firm size, firm age, leverage, and profitability are considered as control variables. The results reveal that board size, board composition, and directors' ownership have a significant positive impact on financial distress whereas CEO duality has a significant negative impact on financial distress. Control variables, firm size, and leverage have significant positive impact on financial distress while it is negative for firm age. The findings may be of interest to academic scholars, practitioners, and regulators interested in learning about the quality of corporate governance procedures in a developing market and their influence on financial distress. It also encourages listed companies in Sri Lanka to implement corporate governance practices that would lead to increased investor confidence.