Shahab Udin, Muhammad Arshad Khan and Attiya Yasmin Javid
The purpose of this paper is to explore the role of corporate governance proxies by ownership structure on the likelihood of firms’ financial distress for a sample of 146…
Abstract
Purpose
The purpose of this paper is to explore the role of corporate governance proxies by ownership structure on the likelihood of firms’ financial distress for a sample of 146 Pakistani public-limited companies listed at the Karachi Stock Exchange over the period of 2003-2012.
Design/methodology/approach
The dynamic generalized method of moments (GMM) estimator and panel logistic regression (PLR) are used to determine the impact of corporate governance on the financial distress. The ownership structure is used as a determinant of corporate governance, while the Altman Z-score is utilized as an indicator of financial distress, as it measures financial distress inversely. The smaller the values of the Z-score, the higher will be the risk of financial distress.
Findings
The authors find insignificant impact of ownership structure on firms’ likelihood of financial distress based on the dynamic GMM method. However, the PLR results indicate that foreign shareholdings have a significant negative association with firms’ likelihood of financial distress, in the case of Pakistan. An evidence of a negative and insignificant relationship between institutional ownership and financial distress was observed, which indicates the passive role of institutional investors in Pakistan. The results also reveal a positive and significant relationship between insider’s ownership and likelihood of financial distress. This finding is consistent with the entrenchment hypothesis which predicts that insiders are more aligned with their self-interest than outside shareholders’ interest when their shareholding increases in the business. Furthermore, the results also reveal insignificant association between government shareholdings and the probability of financial distress. The reason could be the social welfare objective of the government entities rather than profit maximization.
Practical implications
The findings of this study provide more insight to corporate managers and investors about the association between the quality of corporate governance and the degree of financial distress, with respect to Pakistani firms. Furthermore, this study contributes to the existing literature by adding new evidence from developing countries like Pakistan which are helpful for regulatory bodies and policymakers in the formulation of long-term corporate governance strategies to manage the financial distress. It is well established that strengthening the quality of corporate governance practices enhances the efficiency of capital markets and reduces the probability of financial distress.
Originality/value
The study extends the body of existing literature on corporate governance and the likelihood of financial distress with reference to Pakistan. The results suggest that policymakers may pay special attention to the quality of corporate governance, specifically ownership structure, while predicting corporate financial distress.
Details
Keywords
Muhammad Irfan Javaid and Attiya Yasmin Javid
The purpose of this paper is to determine whether the original and the revised versions of the existing prediction models are the best tools for assessing the going concern…
Abstract
Purpose
The purpose of this paper is to determine whether the original and the revised versions of the existing prediction models are the best tools for assessing the going concern assumption of a firm in the creditor-oriented regime.
Design/methodology/approach
The analysis begins from estimating the classification accuracy of the original versions of the bankruptcy, going concern and liquidation prediction models. At the second step, the revised versions of the aforesaid existing prediction models are developed. At the third step, the accounting-based going concern prediction model is proposed by using multiple discriminant analysis for the creditor-oriented regime. The sample contains the financial ratios of manufacturing firms for the period 1997–2014.
Findings
The finding indicates that the five discriminatory variables, which belong to “income statement” and “statement of financial position,” of the proposed model are not only useful for evaluating the going concern assumption of a firm, but also give aid for evaluating the financial fraud risk of a firm as compared to the original and revised versions of the prediction models that are developed for the debtor-oriented regime.
Research limitations/implications
The external validity of the proposed prediction model can be tested on the large data sets of the countries where the liquidation provisions are a part of their local corporate law.
Practical implications
The proposed accounting prediction model will be helpful for the internal and external auditors in order to determine the going concern assumption at planning, performing and evaluation stages.
Originality/value
The proposed accounting-based going concern prediction model is based on liquidated firms.
Details
Keywords
Muhammad Sohail and Syed Tehseen Abbas
This study aims to analyze the Prandtl fluid flow in the presence of better mass diffusion and heat conduction models. By taking into account a linearly bidirectional stretchable…
Abstract
Purpose
This study aims to analyze the Prandtl fluid flow in the presence of better mass diffusion and heat conduction models. By taking into account a linearly bidirectional stretchable sheet, flow is produced. Heat generation effect, thermal radiation, variable thermal conductivity, variable diffusion coefficient and Cattaneo–Christov double diffusion models are used to evaluate thermal and concentration diffusions.
Design/methodology/approach
The governing partial differential equations (PDEs) have been made simpler using a boundary layer method. Strong nonlinear ordinary differential equations (ODEs) relate to appropriate non-dimensional similarity variables. The optimal homotopy analysis technique is used to develop solution.
Findings
Graphs analyze the impact of many relevant factors on temperature and concentration. The physical parameters, such as mass and heat transfer rates at the wall and surface drag coefficients, are also displayed and explained.
Originality/value
The reported work discusses the contribution of generalized flux models to note their impact on heat and mass transport.