Staying alive - On the composition of corporate boards and financial distress risk

Abstract: This study investigates the relationship between corporate governance and financial distress, considering a sample of 237 publicly listed Swedish firms between 2011 and 2021. The two phenomena have been frequently discussed in academia, and in line with prior literature, an agency theory perspective permeates the analysis. Using a financial definition of distress, we employ logistic regressions to determine which board features that have a mitigating effect on distress risk. In addition, we develop two corporate governance indices to assess the combined impact of having stronger or weaker governance. Moreover, our results indicate that a larger, more diverse board is associated with lower distress risk. In contrast, we do not find robust associations between distress and board independence and ownership. We further conclude that Swedish corporate boards of listed firms differ in terms of gender diversity, size, independence, and ownership. We believe this study contributes to the discussion of the two phenomena and provide additional evidence from a new context characterized by different corporate governance standards, which is of value for decision-makers in the development of regulations and codes.