Abstract
The objective of this paper is to determine the managerial governance characteristics related to financial distress companies. The boards failed to accomplish their monitoring duties, which seemed to be one of the main reasons behind the actual financial distress and bankruptcy that swept the companies across the planet. Through the analysis of a sample of 178 Lebanese non listed and owned family firms, the results showed that the boards (that have a higher proportion of outside directors) are less inclined to face a financial distress than the boards with a lower proportion. Besides, a different conclusion proves that the board’s size and financial distress are directly linked. The paper highlights the extent to which financial distress is associated with corporate governance from a Euro Mediterranean country. It would be a source of education to Lebanese investors who excessively go for short-term returns and of help for regulatory authorities in the framework of making policies on corporate governance reformation.
Similar content being viewed by others
References
Ali, A. (1993). Management theory in a transitional society: the Arab’s experience. International Studies of Management and Organization, 20(3), 7–35.
Asquith, P., Gertner, R., & Scharfstein, D. (1994). Anatomy of financial distress: an examination of junk-bond issuers. The Quarterly Journal of Economics, MIT Press, 109(3), 625–658.
Baldwin, C., & Scott, M. (1983). The resolution of claims in financial distress: the case of Massey Ferguson. Journal of Finance, 38, 505–516.
Baysinger, B. D., & Butler, H. N. (1985). Corporate governance and the board of directors: performance effects of change in board composition. Journal of law, Economics and organization, 1, 101–124.
Beiner, S., Drobetz, W., Schmid, M. M., & Zimmermann, H. (2006). An integrated framework of corporate governance and firm valuation: evidence from Switzerland. European Financial Management Journal, 12, 249–283.
Bonn, I., Yoshikawa, T., & Phan, P. H. (2004). Effects of board structure on firm performance: a comparison between Japan and Australia. Asian Business and Management, 3, 105–121.
Burke, R. J. (1994). Women on corporate boards of directors: views of Canadian Chief Executive Officers. Women in Management Review, 9, 3–10.
Campbell, K., & Minguez-Vera, A. (2007). The influence of gender on Spanish boards of directors: an empirical analysis. Working Paper, Instituto Valenciano de Investigaciones Económicas, S.A., No. 2007–08.
Chen, C. R., Guo, W., & Mande, V. (2003). Managerial ownership and firm valuation: evidence from Japanese firms. Pacific-Basin Finance Journal, 11, 267–283.
Daily, C. M., & Dalton, D. R. (1994). Bankruptcy and corporate governance: the impact of board composition and structure. Academy of Management Journal, 37, 1603–1617.
Davies, J. R., Hillier, D., & McColgan, P. (2005). Ownership structure, managerial behavior and corporate value. Journal of Corporate Finance, 11, 645–660.
Davis, J. H., Schoorman, F. D., & Donaldson, L. (1997). Toward a stewardship theory of management. Academy of Management Review, 22, 20–47.
Donaldson, L., & Davis, J. H. (1989). CEO governance and shareholder returns: agency theory or stewardship theory. Paper Presented at the Annual Meeting of the Academy of Management, Washington, DC.
Eisenberg, T., Sundgren, S., & Wells, T. W. (1998). Larger board size and decreasing firm value in small firms. Journal of Financial Economics, 48, 35–54.
Elloumi, F., & Gueyie, J. P. (2001). Financial distress and corporate governance: an empirical analysis. Corporate Governance, 1(1), 15–23.
Fahed-Sreih, J. (2006). Lebanon, Handbook of family business and family business consultation: a global perspective. (pp. 203–222). Binghamton: International Business Press.
Gilson, S. C. (1990). Bankruptcy, boards, banks, and blockholders. Journal of Financial Economics, 27, 355–387.
Hermalin, B. E., & Weisbach, M. S. (1988). The determinants of board composition. The Rand Journal of Economics, 19, 589–606.
Jensen, M. C. (1993). The modern industrial revolution, exit, and the failure of internal control systems. Journal of Finance, 48, 831–880.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3, 305–360.
Kaserer, C., & Moldenhauer, B. (2008). Inside ownership and corporate performance: evidence from Germany. Review of Managerial Science, 1, 1–35.
Kosnik, R. (1990). Effects of board demography and directors’ incentives on corporate Greenmail Decisions. Academy of Management Journal, 33, 129–150.
Lee, T. S., & Yeh, Y. H. (2004). Corporate governance and financial distress: evidence from Taiwan. Corporate Governance: An International Review, 12, 378–388.
Lipton, M., & Lorsch, J. (1992). A modest proposal for improved corporate governance. Business Lawyer, 48, 59–77.
Mak, Y. T., & Kusnadi, Y. (2005). Size really matters: further evidence on the negative relationship between board size and firm value. Pacific-Basin Finance Journal, 13, 301–318.
Pfeffer, J. (1972). Size and composition of corporate boards of directors: the organization and its environment. Administrative Science Quarterly, 17, 218–228.
Rechner, P., & Dalton, C. (1991). CEO duality and organizational performance: a longitudinal analysis. Strategic Management Journal, 12, 155–160.
Salloum, C., & Azoury, N. (2009). Détresse Financière et Gouvernance d’Entreprise, approche empirique. Revue Libanaise de Gestion et d’Economie, 1.
Salloum, C., & Azoury, N. (2010). Gouvernance, stress financier et performance des entreprises, cas du Liban. La Revue des Sciences de Gestion, 243–244.
Weisbach, M. S. (1988). Outside directors and CEO turnover. Journal of Financial Economics, 20, 431–460.
Whitaker, R. B. (1999). The early stages of financial distress. Journal of Economics and Finance, 23(2), 123–133.
Yermack, D. (1996). Higher market valuation of companies with a small board of directors. Journal of Financial Economics, 40(2), 185–211.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Salloum, C.C., Azoury, N.M. & Azzi, T.M. Board of directors’ effects on financial distress evidence of family owned businesses in Lebanon. Int Entrep Manag J 9, 59–75 (2013). https://doi.org/10.1007/s11365-011-0209-9
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11365-011-0209-9