Effect of Corporate Governance on Financial Distress of Pharmaceutical Firms in Nigeria

Abstract

The study examined the effect of corporate governance on financial distress of pharmaceutical firms in Nigeria. Board size, board composition, and board meetings were the corporate governance mechanism used for the study, while Altman Zeta Score was the dependent variable of the study. The specific objectives of the study which is to ascertain the effect of board size and board composition on Altman Zeta Score of pharmaceutical firms in Nigeria. The study adopted an ex-post-facto research design, covering the period between 2013 and 2022. Secondary data were extracted from the annual reports and accounts of the sampled pharmaceutical firms in Nigeria. Multiple fixed effect regression analysis was used for the panel data analysis and it was revealed that board size has a positive and statistically insignificant effect on the financial distress of firms in Nigeria’s pharmaceutical industry. Also, board composition has a positive and insignificant effect on the financial distress of firms in the pharmaceutical industry in Nigeria. These imply that corporate governance of pharmaceutical firms was not a significant cause of their financial distress. With regards to the size of the board, additions or subtractions to the size of the board should be made with respect to how the corporate governance of the organization affects other areas of its performance. The result of the study indicated that board composition has a negative and insignificant effect on the financial distress of pharmaceutical firms in Nigeria. The insignificance of the result shows that the composition of the board of pharmaceutical firms does not matter in their financial distress. However, the firms are advised to reduce the insider participation in the board and decision-making processes in the organization.

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