Analysis of Corporate Governance Index andFirm Financial Distress: Evidence fromShariah Compliant Listed Firms in Pakistan

Abstract

Purpose: Corporate governance practices and the economic condition of the country are some of those factors that may influence the firm’s financial health. This study evaluates the effect of corporate governance, and macroeconomic factors on firmfinancial distress of Shariah compliant firms in Pakistan. Design: This empirical analysis contains 238listed Shariah non-financial firms of Pakistan during the period of 2015 to 2022. Findings: The study finds a negative linkage between corporate governance index, macroeconomic factor and firm financial distress of Shariah compliant firms. Thecorporate governance index is positively correlated with the firm’s financial distress. Conclusion and Implications: The outcomes of this study have practical implications for managers, investors, authorities, and researchers. Managers should be aware of governance practices because they are one of the major causes of firm financial distress. Managers should also embrace the governance structure as their top agenda becausefinancial position and governance quality help to establish good relationships withvarious stakeholders which helps to facilitate a firm’s access to alternative sources of finance and decrease the firm usage of debts, hence reducing the probability of firmfinancial distress.

Keywords: Corporate Governance; Shariah compliant; Financial Distress.