Financial Distress and Corporate Governance: The Impact of Board Configuration

Xavier Brédart


The number of filings for bankruptcy procedures has exploded since 2007 and governance has been pointed out
as one of the causes. We took a dataset of 312 US firms and asked the following research question: does the
board of directors configuration have an impact on financial distress? We used a matched-pair sample of US
quoted firms with half of the sample filing for Chapter 7 (liquidation) or 11 (reorganization) of the United States
Bankruptcy Code and conducted logit regression analysis. We found that some board size was significantly
different for firms that opted for legal protection from those that did not. This study uses corporate governance
perspective to analyse the configuration of the board and its impact on a the decision of a company to resort to a
bankruptcy protection law. By demonstrating that corporate governance matters in terms of financial distress,
this study offers guidance to shareholders and financial institutions.

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International Business Research  ISSN 1913-9004 (Print), ISSN 1913-9012 (Online)

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