Moderating effect of managerial ability in the relationship between Corporate governance features and financial distress likelihood: (PLS Approach)

Subject Areas : Financial Economics

Elham Eghbali ¹ , Ali Asghar Anvary Rostamy ² , Farhad Hanifi ³

1 - Department of Financial Management, Central Tehran Branch, Islamic Azad University, Tehran, Iran
2 - Department of Planning & Management, Faculty of management & Economics, Tarbiat Modares University, Tehran, Iran
3 - Department of Financial Management, Central Tehran Branch, Islamic Azad University, Tehran, Iran

Received: 2021-05-26 Accepted : 2021-09-24 Published : 2022-07-01

Keywords: Audit Features, PLS Approach, Ownership Structure, Financial Distress, managerial ability,

Abstract :

The purpose of this research is to examine the effect of ownership structure and audit features on the financial distress likelihood by considering the moderating effect of managerial ability. This study utilized partial least squares structural equations modeling (PLS-SEM) analysis and data from 107 firms listed in the Tehran Stock Exchange. Audit features measured by auditor size and audit opinion and ownership structure measured by the block-holder ownership and institutional ownership. Backward logit analysis was used to calculate the financial distress likelihood. DEA technique and Tobit regression were used to measure the managerial ability. The results of the study show that audit features have a positive effect on the likelihood of financial distress. Moreover, the effect of ownership structure on the financial distress likelihood and the moderating effect of manage-rial ability were not confirmed. This paper offers evidence on the extent to which distress is associated with corporate governance and managerial ability from a developing country. The paper should be of interest to the regulatory bodies and practitioners because in many developing countries the implementation of corporate governance mechanisms is voluntary and is not yet required.

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