Does the efficiency of corporate governance and intellectual capital affect a firm's financial distress? Evidence from Egypt

Abstract

Purpose

Using data on 51 firms traded in the Egyptian Exchange from 2014 to 2016, this paper aimed to assess the efficiency of corporate governance (CG) and intellectual capital (IC) practices and to explore their influence on the probability of a firm's financial distress.

Design/methodology/approach

The relative efficiency of CG and IC practices has been measured under the Malmquist data envelopment analysis model. A modified Z-score model was applied to assess firms' financial distress.

Findings

The Wilcoxon signed-rank test revealed almost insignificant evidence regarding the improvement of CG and IC efficiency over the study period. The efficiency score of CG practices had no impact on the likelihood of financial distress. However, the efficiency score of IC negatively affected the probability of financial distress.

Research limitations/implications

The integration of data envelopment analysis with Tobit regression was required for identifying the significant drivers of efficient CG and IC.

Practical implications

The findings shed light on the role of CG and IC in alleviating the degree of financial distress in Egypt as an emerging market, especially the need to raise firms' compliance with the Egyptian CG code from a voluntary to mandatory status.

Originality/value

This study, using Malmquist data envelopment analysis, is among the first attempts to assess the relative efficiency of CG and IC practices and their effects on financial distress.

Citation

Shahwan, T.M. and Habib, A.M. (2020), "Does the efficiency of corporate governance and intellectual capital affect a firm's financial distress? Evidence from Egypt", Journal of Intellectual Capital, Vol. 21 No. 3, pp. 403-430. https://doi.org/10.1108/JIC-06-2019-0143