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Corporate governance and financial distress: Asian emerging market perspective

Noman Younas (Department of Management Sciences, COMSATS University Islamabad – Wah Campus, Wah Cantt, Pakistan)
Shahab UdDin (Department of Business Management Sciences, Karakoram International University, Gilgit, Pakistan)
Tahira Awan (Faculty of Management Sciences, International Islamic University, Kuala Lumpur, Malaysia)
Muhammad Yar Khan (Department of Management Sciences, COMSATS University Islamabad – Wah Campus, Wah Cantt, Pakistan)

Corporate Governance

ISSN: 1472-0701

Article publication date: 11 February 2021

Issue publication date: 26 May 2021




The purpose of this paper is to examine the impact of corporate governance index (PAKCGI) on firm financial distress for a sample of 152 non-financial firms listed at Pakistan Stock Exchange (PSX) over the period from 2003 to 2017.


To examine the impact of PAKCGI on financial distress (Altman Z-Score), random effect model is applied. The PAKCGI is a self-constructed index based on the five important factors of corporate governance practices, i.e. board of directors, audit committees, right of shareholders, disclosures and risk management. The binary coding approach is adopted for the construction of PAKCGI. Altman Z-Score model is used as a proxy for financial distress indicator. The absolute value of Altman Z-score has been taken as financial distress indicator.


The outcomes of the study indicate a positive impact of PAKCGI on risk of firms’ financial distress. The positive coefficient of PAKCGI implies that the good corporate practices work as catalyst to reduce risk of financial distress in Pakistan. A significant negative impact of block holders on financial distress suggests that the concentrated block ownership take monopolistic decision to protect their interests. It has also been observed that significant positive impact of institutional ownership on financial distress exists in the Pakistani listed firms. Furthermore, this study also reveals that significant negative association between board size, CEO duality and financial distress indicator.

Research limitations/implications

The findings may encourage the Pakistani listed companies to follow and implement good corporate governance practices, which would lead to increase the confidence of investors, regulators and stakeholders.


The current study extends the corporate governance literature by examining the relationship between the corporate governance attributes and the financial distress status of Pakistani listed companies. From the academic perspective, this paper adds to the knowledge concerning the association between corporate governance practices and risk of financial distress in emerging markets.



The authors would like to thank Editor in Chief, Associate Editor, and the anonymous referees for their valuable comments. The author would also like to take this opportunity to thank COMSATS University Islamabad, Wah Campus, Karakoram International University Gilgit-Baltistan- Ghizer Campus and International Islamic University, Islamabad, Pakistan for sparing us to conduct this valuable research.


Younas, N., UdDin, S., Awan, T. and Khan, M.Y. (2021), "Corporate governance and financial distress: Asian emerging market perspective", Corporate Governance, Vol. 21 No. 4, pp. 702-715.



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