Probability of financial distress and proposed adoption of corporate governance structures: Evidence from Pakistan

Figures & data

Table 1. Sample firms

Sectors	Total firms in the sector	Firms selected
Cotton textile	56	12
Chemical sector	29	08
Engineering sector	19	06
Sugar sector	22	01
Cement sector	21	02
Fuel and energy sector	18	06
Miscellaneous sector	23	17
Total firms	188	52

Table 2. Descriptive statistics

	BI	BO	Audit committee	CEO duality	Director ownership	Audit opinion	Size	Leverage	ME
Mean	1.819	1.91538	0.45	0.5	0.3	0.4	6.6317	0.87882	170.89
Standard error	0.059	0.039	0.0218	0.02195	0.02012	0.0465	0.0544	0.01873	10.573
Median	1	2	0	0.5	0	0	6.3996	0.78802	87.445
Mode	1	1	0	0	0	3	6.3995	0.91823	0
Standard deviation	1.347	0.898	0.498	0.50048	0.4587	0.456	1.242	0.42704	241.10
Sample variance	1.813	0.806	0.248	0.25048	0.2104	0.356	1.541	0.18236	0.58
Kurtosis	0.223	0.916	−1.967	2.00774	1.2385	1.4	0.968	13.0866	15.786
Skewness	0.974	0.905	0.201	1.29E−18	0.8754	0.78	0.0231	2.70142	3.049
Range	5	4	1	1	1	2	7.956	3.88464	2367
Minimum	0	1	0	0	0	1	2.603	0.10925	0
Maximum	5	5	1	1	1	3	10.558	3.99389	2366.6

BI: board independence; BO: blockholder ownership; ME: management efficiency.

Table 3. Correlation analysis

Variables	BI	BO	CEO duality	Director ownership	Audit committee	Audit opinion	Leverage	Size	ME
BI	1	—		—	—	—	—	—	—
BO	0.056 0.132	1	—	—	—	—	—	—	—
CEO duality		0.065 0.149	1	—	—	—	—	—	—
Director ownership		0.047 0.292	0.655** 0	1	—	—	—	—	—
Audit committee		0.02 0.655	−0.113* 0.012	−0.072 0.108	1	—	—
Audit opinion		0.051 0.255	0.018 0.683	0.016 0.721	0.052 0.245	1	—	—	—
Leverage		0.153** 0.001	−0.076 0.092	−0.057 0.203	0.032 0.476	0.04 0.369	1	—	—
Size		−0.210** 0	0.033 0.458	0.027 0.554	0.046 0.302	−0.191** 0	−0.426** 0	1	—
ME		−0.145** 0.001	−0.006 0.885	−0.012 0.782	0.055 0.224	−0.113* 0.012	−0.164** 0	0.517** 0	1

BI: board independence; BO: blockholder ownership; ME: management efficiency.

Note: **Correlation is significant at 0.01 levels (two tailed); *correlation is significant at 0.05 levels (two tailed).

Table 4. Logistic regression results

Variables	B	SE	Wald	df	Significance
BI	0.118	0.076	2.429	1	0.119
BLOCKOWN	−1.23	0.114	−10.789	1	0.02
Duality	−0.136	0.271	0.25	1	0.617
DIROWN	−7.98	0.231	−34.54	1	0.01
AUDCOM	−1.19	0.205	−5.8	1	0.044
AUDOPN	1.396	0.225	38.357	1	0
Size	−0.178	0.112	2.519	1	0.101
MGTEFF	−0.09	0.042	2.14	1	0.1
Leverage	1.307	0.314	17.382	1	0
Constant	11.37	0.931	12.21	1	0.026

BI: board independence; SE: standard error.

Note: Variable(s) entered on step 1: BI, BLOCKOWN, duality, DIROWN, AUDCOM, AUDOPN, size, MGTEFF and leverage.

Table 5. Regression results

Model	B	Standard error	T	Significance
Constant	42.743	12.167	3.513	0.000
BI	1.234	0.234	5.273	0.012
BLOCKOWN	−1.434	0.0343	41.8075	0.000
Duality	−0.765	0.298	2.5671	0.0501
DIROWN	−4.012	0.112	35.821	0.000
AUDCOM	−0.784	0.176	4.454	0.017
AUDOPN	3.876	0.245	15.820	0.000
Leverage	6.789	0.272	24.95	0.000
Size	−1.453	0.143	10.16	0.000
MGTEFF	−0.789	0.321	−2.45	0.076
R^2	0.4576
F statistics	0.000

BI: board independence.

Table 6. Second-stage regression results

	Distress	BI	BO	CEO duality	Director ownership	Audit committee
Panel A: first-stage regression results
Distress	−0.189*** (−4.700)
Lagged BI		0.835*** (45.380)
Lagged BO			0.850*** (48.290)
Lagged CEO duality				0.701*** (33.050)
Lagged director ownership					0.812*** (51.510
Lagged audit committee						0.846*** (56.040)
Model F statistics	210.850***	263.570***	267.310***	123.960***	280.540***	471.720***
Adjusted R^2	0.676	0.723	0.726	0.550	0.735	0.824
Panel B: 3SLS regression results
Constant	3.114***	24.169	0.210	0.346	0.068	0.036
BI	−0.001** (0.037)			−0.001** (0.050)	0.000 (0.859)	0.000 (0.835)
BO	−0.230*** (0.000)	−3.117 (0.240)		0.077 (0.215)	0.019 (0.188)
CEO-chair duality	−0.065** (0.028)	−0.698 (0.597)			0.013* (0.062)	−0.004 (0.864)
Director ownership	−0.604*** (0.000)	−11.799* (0.053)	−0.017 (0.739)	−0.033 (0.807)
Audit committee	−0.120*** (0.000)	−0.260 (0.852)		−0.007 (0.827)
Audit opinion	0.084** (0.018)					−0.003 (0.917)
Leverage	−0.001**	−0.028*	0.001		−0.001
Firm size	−0.288***	−1.063	−0.016	−0.034	−0.007	0.016
ME	−0.033***	−0.693**	0.002	0.009	0.001
Distress	−0.189***	−7.998	−0.066	0.003	−0.018	−0.064
Lagged BI		0.828*** (0.000)
Lagged BO			0.844*** (0.000)
Lagged CEO duality				0.699*** (0.000)
Lagged director ownership					0.805*** (0.000)
Lagged audit committee						0.844*** (0.000)

BI: board independence; BO: blockholder ownership; ME: management efficiency; 3SLS: three-stage least squares.