Does investment committee mitigate the risk of financial distress in GCC? The role of investment inefficiency

Redhwan Al-Dhamari, H. Al-Wesabi, O. Farooque, M. Tabash, G. E. El Refae
{"title":"Does investment committee mitigate the risk of financial distress in GCC? The role of investment inefficiency","authors":"Redhwan Al-Dhamari, H. Al-Wesabi, O. Farooque, M. Tabash, G. E. El Refae","doi":"10.1108/ijaim-08-2022-0180","DOIUrl":null,"url":null,"abstract":"\nPurpose\nThe purpose of this study is to empirically examine how the voluntary formation of a specialised investment committee (IC) and IC characteristics affect financial distress risk (FDR) and whether such impact is influenced by the level of investment inefficiency.\n\n\nDesign/methodology/approach\nThe authors use a large sample of Gulf Cooperation Council (GCC) non-financial companies during 2006–2016. A principal component analysis is done to aggregate and derive a factor score for IC characteristics (i.e. independence, size and meeting) as a proxy for the effectiveness of IC. This study also uses three measurements of FDR to corroborate the findings and partitions sample firms into overinvesting and underinvesting companies to examine the potential impact of investment inefficiency on the IC–FDR nexus.\n\n\nFindings\nUsing feasible generalised least square estimation method, the authors document that the likelihood of financial distress occurrence decreases for firms with separate ICs. The authors also find that firms with effective ICs enjoy lower FDR. In other words, the probability of financial distress minimises if the IC is large, meets frequently and has a high number of independent directors. However, the authors find neither any moderation nor any mediation effect of investment inefficiency for the impact of IC and IC attributes on FDR. The additional analysis indicates the expected benefits of an actively performing IC are amplified for firms with risk of both over- and underinvestment. These findings are robust to alternative measures of FDR and investment inefficiency, sub-sample analysis and endogeneity concerns.\n\n\nOriginality/value\nThis study, to the best of researchers’ knowledge, is the first to provide evidence in GCC firms’ perspective, suggesting that the existence of an effective IC is associated with a lower risk of financial distress, and to some extent, the economic benefits of IC are aggrandised for companies with a high probability of over- and underinvestment problems. These results are unique and contribute to a small but growing body of literature documenting the need for effective ICs and their economic consequences on investment efficiency in the FDR environment. The findings of this study carry valuable practical implications for regulatory bodies, policymakers, investors and other interested parties in the GCC region.\n","PeriodicalId":229587,"journal":{"name":"International Journal of Accounting & Information Management","volume":"404 1","pages":"0"},"PeriodicalIF":0.0000,"publicationDate":"2023-02-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"International Journal of Accounting & Information Management","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1108/ijaim-08-2022-0180","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 0

Abstract

Purpose The purpose of this study is to empirically examine how the voluntary formation of a specialised investment committee (IC) and IC characteristics affect financial distress risk (FDR) and whether such impact is influenced by the level of investment inefficiency. Design/methodology/approach The authors use a large sample of Gulf Cooperation Council (GCC) non-financial companies during 2006–2016. A principal component analysis is done to aggregate and derive a factor score for IC characteristics (i.e. independence, size and meeting) as a proxy for the effectiveness of IC. This study also uses three measurements of FDR to corroborate the findings and partitions sample firms into overinvesting and underinvesting companies to examine the potential impact of investment inefficiency on the IC–FDR nexus. Findings Using feasible generalised least square estimation method, the authors document that the likelihood of financial distress occurrence decreases for firms with separate ICs. The authors also find that firms with effective ICs enjoy lower FDR. In other words, the probability of financial distress minimises if the IC is large, meets frequently and has a high number of independent directors. However, the authors find neither any moderation nor any mediation effect of investment inefficiency for the impact of IC and IC attributes on FDR. The additional analysis indicates the expected benefits of an actively performing IC are amplified for firms with risk of both over- and underinvestment. These findings are robust to alternative measures of FDR and investment inefficiency, sub-sample analysis and endogeneity concerns. Originality/value This study, to the best of researchers’ knowledge, is the first to provide evidence in GCC firms’ perspective, suggesting that the existence of an effective IC is associated with a lower risk of financial distress, and to some extent, the economic benefits of IC are aggrandised for companies with a high probability of over- and underinvestment problems. These results are unique and contribute to a small but growing body of literature documenting the need for effective ICs and their economic consequences on investment efficiency in the FDR environment. The findings of this study carry valuable practical implications for regulatory bodies, policymakers, investors and other interested parties in the GCC region.
投资委员会是否减轻了海湾合作委员会财政困境的风险?投资效率低下的作用
本研究的目的是实证检验一个专门的投资委员会(IC)的自愿组成和IC的特征如何影响财务困境风险(FDR),以及这种影响是否受到投资效率低下水平的影响。设计/方法/方法作者使用了2006-2016年海湾合作委员会(GCC)非金融公司的大样本。我们进行了主成分分析,以综合并得出IC特征(即独立性、规模和会议)的因子得分,作为IC有效性的代理。本研究还使用了三种FDR测量来证实研究结果,并将样本公司划分为过度投资和投资不足的公司,以检查投资效率低下对IC - FDR关系的潜在影响。使用可行的广义最小二乘估计方法,作者证明,财务困境发生的可能性降低了公司独立的ic。作者还发现,拥有有效ic的公司享有更低的FDR。换句话说,如果董事会规模大、会议频繁、独立董事人数多,出现财务困境的可能性就会最小化。然而,作者发现投资效率低下对投资效率和投资效率属性对FDR的影响既没有调节作用,也没有中介作用。额外的分析表明,对于投资过多和投资不足的风险公司来说,积极执行集成电路的预期收益被放大了。这些发现是稳健的替代措施,罗斯福和投资效率低下,子样本分析和内生性问题。原创性/价值据研究者所知,本研究首次从海湾合作委员会公司的角度提供了证据,表明有效集成的存在与较低的财务困境风险有关,并且在某种程度上,集成的经济效益被放大了,因为公司很可能存在投资过多和投资不足的问题。这些结果是独特的,并且有助于少量但不断增长的文献记录有效的ic的必要性及其对罗斯福环境下投资效率的经济影响。本研究的结果对海湾合作委员会地区的监管机构、政策制定者、投资者和其他利益相关方具有重要的实际意义。
本文章由计算机程序翻译,如有差异,请以英文原文为准。
求助全文
约1分钟内获得全文 求助全文
来源期刊
自引率
0.00%
发文量
0
×
引用
GB/T 7714-2015
复制
MLA
复制
APA
复制
导出至
BibTeX EndNote RefMan NoteFirst NoteExpress
×
提示
您的信息不完整,为了账户安全,请先补充。
现在去补充
×
提示
您因"违规操作"
具体请查看互助需知
我知道了
×
提示
确定
请完成安全验证×
copy
已复制链接
快去分享给好友吧!
我知道了
右上角分享
点击右上角分享
0
联系我们:info@booksci.cn Book学术提供免费学术资源搜索服务,方便国内外学者检索中英文文献。致力于提供最便捷和优质的服务体验。 Copyright © 2023 布克学术 All rights reserved.
京ICP备2023020795号-1
ghs 京公网安备 11010802042870号
Book学术文献互助
Book学术文献互助群
群 号:481959085
Book学术官方微信