Corporate governance and financial distress: Evidence from Indian companies

Abstract

There is no business without ups and down, even well-established firms will fail if they delay in responding changes in business environment effectively. It becomes very difficult to defend themselves against competitors' new products, mode of services, or strategies, they watch their sales and profits erode, their best people leave, and their stock valuations tumble. Few firms ultimately manage to recover gradually after painful rounds of downsizing and restructuring but many wont.Why do successful companies will fail? It's often assumed that the problem is paralysis. Confronted with a disruption in business conditions, companies freeze; they're caught like the proverbial deer in the headlights. But that explanation doesn't fit the facts. In studying once-thriving companies that have struggled in the face of change, study found little evidence of paralysis. Quite the contrary. The frustrating truth is that we don't comprehend corporate breakdowns nearly as well as we understand other crises, such as human disease. The paper examines certain aspects of corporate governance in the Indian listed companies and their impact on financial distress using a sample of 350 Indian listed companies for a period of 2010 - 2014 using matched pair research design. The industry, total assets and the accounting period was taken into consideration to match the non-distressed firms to the distressed firms. Similar with earlier research, the study indicates that board size, proportion of independent directors to total directors and non-institutional investors are major governance factors which influence the company's distress level. Serials Publications.