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Does board diversity reduce the probability of financial distress? Evidence from Chinese firms

This paper empirically investigates the impact of cognitive board diversity in education, expertise, and tenure facets on financial distress likelihood in the emerging economy of China. This study examines how this relationship varies across State-Owned Enterprises (SOEs) and Non-State-Owned Enterpr...

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Autores principales: Ali, Shahid, Ali, Shoukat, Jiang, Junfeng, Hedvicakova, Martina, Murtaza, Ghulam
Formato: Online Artículo Texto
Lenguaje:English
Publicado: Frontiers Media S.A. 2022
Materias:
Acceso en línea:https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9519064/
https://www.ncbi.nlm.nih.gov/pubmed/36186301
http://dx.doi.org/10.3389/fpsyg.2022.976345
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author Ali, Shahid
Ali, Shoukat
Jiang, Junfeng
Hedvicakova, Martina
Murtaza, Ghulam
author_facet Ali, Shahid
Ali, Shoukat
Jiang, Junfeng
Hedvicakova, Martina
Murtaza, Ghulam
author_sort Ali, Shahid
collection PubMed
description This paper empirically investigates the impact of cognitive board diversity in education, expertise, and tenure facets on financial distress likelihood in the emerging economy of China. This study examines how this relationship varies across State-Owned Enterprises (SOEs) and Non-State-Owned Enterprises (NSOEs). Paper argues that the Chinese stock market, as a typical emerging market, is an excellent laboratory for studying the impact of board diversity on the probability of financial distress. Its underdeveloped financial system and inadequate investor protection leave firms unprotected from financial hardship. A sample of 12,366 observations from 1,374 firms from 2010 to 2018 shows that cognitive diversity qualities are positively linked with Z-score, implying that directors with different educational backgrounds, financial skills, and tenures can assist in reducing the probability of financial distress. Cognitive board diversity reduces the likelihood of financial distress in SOEs and NSOEs. However, tenure diversity is insignificant in all cases. Furthermore, the robustness model “two-step system Generalized Methods of Moments (GMM)” demonstrated a positive association between educational diversity, financial expertise, and financial distress scores. The results have significant implications for researchers, managers, investors, regulators, and policymakers.
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spelling pubmed-95190642022-09-29 Does board diversity reduce the probability of financial distress? Evidence from Chinese firms Ali, Shahid Ali, Shoukat Jiang, Junfeng Hedvicakova, Martina Murtaza, Ghulam Front Psychol Psychology This paper empirically investigates the impact of cognitive board diversity in education, expertise, and tenure facets on financial distress likelihood in the emerging economy of China. This study examines how this relationship varies across State-Owned Enterprises (SOEs) and Non-State-Owned Enterprises (NSOEs). Paper argues that the Chinese stock market, as a typical emerging market, is an excellent laboratory for studying the impact of board diversity on the probability of financial distress. Its underdeveloped financial system and inadequate investor protection leave firms unprotected from financial hardship. A sample of 12,366 observations from 1,374 firms from 2010 to 2018 shows that cognitive diversity qualities are positively linked with Z-score, implying that directors with different educational backgrounds, financial skills, and tenures can assist in reducing the probability of financial distress. Cognitive board diversity reduces the likelihood of financial distress in SOEs and NSOEs. However, tenure diversity is insignificant in all cases. Furthermore, the robustness model “two-step system Generalized Methods of Moments (GMM)” demonstrated a positive association between educational diversity, financial expertise, and financial distress scores. The results have significant implications for researchers, managers, investors, regulators, and policymakers. Frontiers Media S.A. 2022-09-14 /pmc/articles/PMC9519064/ /pubmed/36186301 http://dx.doi.org/10.3389/fpsyg.2022.976345 Text en Copyright © 2022 Ali, Ali, Jiang, Hedvicakova and Murtaza. https://creativecommons.org/licenses/by/4.0/This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY). The use, distribution or reproduction in other forums is permitted, provided the original author(s) and the copyright owner(s) are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.
spellingShingle Psychology
Ali, Shahid
Ali, Shoukat
Jiang, Junfeng
Hedvicakova, Martina
Murtaza, Ghulam
Does board diversity reduce the probability of financial distress? Evidence from Chinese firms
title Does board diversity reduce the probability of financial distress? Evidence from Chinese firms
title_full Does board diversity reduce the probability of financial distress? Evidence from Chinese firms
title_fullStr Does board diversity reduce the probability of financial distress? Evidence from Chinese firms
title_full_unstemmed Does board diversity reduce the probability of financial distress? Evidence from Chinese firms
title_short Does board diversity reduce the probability of financial distress? Evidence from Chinese firms
title_sort does board diversity reduce the probability of financial distress? evidence from chinese firms
topic Psychology
url https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9519064/
https://www.ncbi.nlm.nih.gov/pubmed/36186301
http://dx.doi.org/10.3389/fpsyg.2022.976345
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