Corporate Governance, Board Independence and Financial Distress: A Critical Review of Literature

Abstract

This paper purposes to critically review existing literature on the relationship between corporate governance aspect of board independence, and its influence on financial distress. Specifically, the study reviews the theoretical and empirical literature related to board independence and financial distress with the objective of establishing research gaps for further research. In this context, the study identifies some of the most important theoretical, contextual and methodical shortcomings in prior studies and literature. Review of literature shows that the results of empirical studies on the relationship between board independence and financial distress are not only contradicting but also inconclusive. Further, the agency, stewardship and resource dependence theories give contradicting propositions on the relevance of board independence as a corporate governance mechanism.