The impact of corporate governance mechanisms on corporate failure: an empirical evidence from Palestine Exchange

Abstract

Purpose

The purpose of this research is to examine the impact of governance mechanisms on corporate failure.

Design/methodology/approach

This study used a hypothesis-testing research design to collect data from the annual reports of 35 companies listed on Palestine Exchange from 2010 to 2019. Descriptive and inferential statistics were employed, along with correlation analysis to evaluate linear relationships between variables. The variance inflation factor was used to test multicollinearity, and binary logistic regression was utilized to develop the research model.

Findings

There is a significant positive relationship between board of directors' independency, institutional ownership and the quality of external audit, and corporate failure reduction. No significant relationship has been found among corporate governance variables such as board size, board meetings' frequency, board members' remuneration and audit committee existence, and corporate failure reduction.

Research limitations/implications

Several empirical research studies have developed models to predict corporate failure using accounting and financial data. However, limited research has empirically investigated the impact of the different mechanisms of governance on corporate failure prediction.

Practical implications

The research highlighted the significance of companies' commitment to governance principles and their impact on predicting failure. The study suggests that decision-makers and managers can adopt different governance mechanisms to support corporate success and avoid those that may lead to negative consequences and failure.

Originality/value

This research is the first in Palestine to use a comprehensive list of corporate governance mechanisms to predict the failure of companies listed on the Palestine Stock Exchange between 2010 and 2019.

Citation

Nour, A.I., Najjar, M., Al Koni, S., Abudiak, A., Noor, M.I. and Shahwan, R. (2024), "The impact of corporate governance mechanisms on corporate failure: an empirical evidence from Palestine Exchange", Journal of Accounting in Emerging Economies, Vol. 14 No. 4, pp. 771-790. https://doi.org/10.1108/JAEE-10-2022-0283