Board Diversity in Financial Distress Companies in Malaysia

Abstract

The declining financial performance is often associated with the weak function of the board’s role in the companies. The number of publicly listed companies categorised as Practice Note (PN17) by Bursa Malaysia shows an increase due to financial distress. This study examines the effectiveness of board diversity in financially distressed companies categorised as PN17 by Bursa Malaysia using content analysis of annual reports for five years as secondary data. The characteristics of board diversity include board professionalism and a politically connected board. In contrast, the proxy of financial distress will be measured using Altman Z Score for multiple regressions in evaluating financial performance ratios. Implementing the Malaysian Code of Corporate Governance (MCCG) in 2021 also assessed the effectiveness of board diversity and its interaction with financial distress. The findings from this study are expected to provide evidence that board diversity may have a significant relationship with financially distressed companies. Overall, this study may assist investors, practitioners, and external regulators in monitoring the company by assessing the effectiveness of board diversity from being classified as a financially distressed company.