PurposeThe purpose of this paper is to examine the impact of board gender diversity on firm financial distress for a sample of 367 non-financial firms listed on Bursa Malaysia over the period from 2011 to 2019.Design/methodology/approachThe study employs both panel logistic regression and dynamic generalized method of moments estimator to determine the impact of board gender diversity on the likelihood of financial distress. Altman Z-score model is used as a proxy for financial distress indicator. The bigger the Z-score, the smaller the risk of financial distress.FindingsThe results show that board gender diversity could help to improve board effectiveness by preventing corporations from being too exposed to financial distress and bankruptcy. In particular, whether they are independent or inside members, women directors are likely to reduce the likelihood of financial distress. The results also show that the effect of female directors on the likelihood of financial distress is strengthened through more board independence. The results are consistent with those in prior research that documents the benefits of board gender diversity.Practical implicationsThis paper provides insights for corporate decision makers in emerging economies, helping them to determine the board's design in terms of roles and composition that promote governance practices and prevent financial troubles. Furthermore, the findings of this study may be useful regulators as they shed light on the importance to undertake measures and reforms to promote board effectiveness by the introduction of gender diversity. Finally, this study also offers implications for society in general, considering that the practice of enhancing board gender diversity can significantly safeguard the interest of a wide range of stakeholders by reducing the chances of corporate bankruptcy.Originality/valueWhile prior research has examined the effect of board gender diversity on firm performance, this study is the first to investigate the effect of board gender diversity on the likelihood of financial distress in Malaysia.

Purpose This study aims to explore the role of board gender diversity in enhancing the allocation of free cash flow (FCF). It examines the direct effect of board gender diversity, as well as its indirect effect, through debt and dividend policies, on the level of FCF. Design/methodology/approach This study applies a three-stage least squares regression analysis for a sample of 367 Malaysian listed firms over the period 2011–2019. Findings The results show that female directors significantly deter the opportunistic behavior of managers. The authors find that gender diversity – as measured by the percentage of women on the board and the percentage of female independent directors are likely to reduce excess funds. Moreover, the results reveal a significant indirect effect of board gender diversity, through dividend payouts, on the efficient allocation of FCF. The results are consistent with those in prior studies that document the benefits of board gender diversity. Practical implications The research findings are beneficial to policymakers, as it allows them to assess the importance of diversity on boards in the monitoring of the managers, particularly as it pertains to the allocation of excess funds. Furthermore, these findings have implications for regulators as they shed light on the importance to undertake measures and reforms to promote board effectiveness by the introduction of gender diversity. Originality/value While prior research has examined the effect of board gender diversity on firm performance, the study is the first to investigate both the direct and indirect effect of board gender diversity on the allocation of FCF.

This paper examines the relation between the ownership-control discrepancy and dividend policy of Tunisian firms. Using data of 44 Tunisian firms, the current study provides evidence in support of the expropriation hypothesis. The empirical results show that the largest shareholder maintains a controlling power measured by Banzhaf index in excess of his cash flow rights which, leads to a low level of dividend payout ratios. In contrast, when the control power is shared between multiple large shareholders, Tunisian firms are likely to pay large dividends.

Purpose This paper aims to examine the mediating effect of dividend payout on the relationship between internal governance mechanisms (board of directors and ownership structure) and the free cash flow level. Design/methodology/approach Linear regression models are used to investigate such relationships applying data from a sample of 207 non-financial firms listed on the Gulf Cooperation Council countries’ stock markets between 2009 and 2016. To test the significance of mediating effect, the author uses the Sobel test. Findings The author finds a partial mediation effect of dividend on the relationship between both board independence and managerial ownership and the level of free cash flow. The results confirm the major role of outside directors in corporate governance. This governance mechanism contributes to the protection of shareholders’ interests through a generous dividend policy. However, the author finds that large managerial shareholdings increase the level of free cash flow through lower dividend payouts. This result suggests that powerful managers follow their preference of retaining excess cash to their own interests. Practical implications This paper offers insights to policy-makers of emerging economies interested in the development of the corporate governance. This study provides guidance for firms in the construction and implementation of their own corporate governance policies. Originality/value The main contribution of the present paper is to examine the dividend payout as a potential mediating variable between internal governance mechanisms and free cash flow. Moreover, it highlights the issue of efficient management of substantial funds in Sharia-compliant and non-Sharia-compliant firms.

Purpose This study aims to examine the mediating effect of board independence on the relationship between ownership structure and audit quality. Design/methodology/approach The research uses generalized methods of moments regression to test the relationship between ownership structure and audit quality. The sample consists of 162 non-financial firms listed on the Gulf Cooperation Council stock markets between the years of 2009 and 2016. To test the significance of the mediating effect, this paper uses the Sobel test. Findings Empirical findings show that companies with higher family ownership are less likely to demand extensive audit services and, as a result, pay lower audit fees. Conversely, this study finds that companies with higher active and passive institutional ownership are more likely to engage high-quality auditors and pay larger audit fees. As for government ownership, it has no significant impact on audit fees. The results also reveal that the negative (positive) effect of family (institutional) ownership on audit quality follows the path through reducing (enhancing) board independence. Further tests are conducted and support the main findings. Practical implications This study has important implications for policymakers and regulators to address the conflict between controlling shareholders and minorities by promoting higher standards of audit quality. The study findings may be useful to investors, assisting them in making better-informed decisions and aids other interested parties in gaining a better understanding of the role played by ownership structure in audit quality. The study also contributes to the strategic board behavior by bringing a new perspective on how boards engage in monitoring by requesting external audit services. This behavior is likely to be influenced by the type of controlling shareholder. Originality/value The main contribution of the present paper is to examine the board composition as a potential mediating variable between ownership structure and audit quality. Moreover, it highlights the issue of improving governance mechanisms.

PurposeThis study aims to investigate the influence of macroeconomic conditions on corporate cash holdings in terms of their influence on the level of cash and the speed of adjustment of cash to target levels in the Gulf Cooperation Council countries (GCC).Design/methodology/approachThe study employs both static and dynamic regression analyses considering a sample of 2,878 firm-year observations drawn from stock markets in GCC countries over the 2010–2018 period.FindingsConsistent with the precautionary motive, the results show that GCC firms tend to accumulate cash reserves in weak economic periods. Evidence also reveals that the estimated adjustment coefficients from dynamic panel models show that GCC firms adjust more slowly toward their target cash ratio in periods of unfavorable economic conditions.Practical implicationsThis study has important implications for managers, policymakers and regulators. For managers, the study is an important reference to understand and design cash management policies by considering financial constraints imposed by macroeconomic conditions. In particular, managers should pay more attention to periods of credit crunch and weak economic conditions in which firms may be exposed to greater bankruptcy risks. For policymakers and regulators, this study may be useful in assessing the effect of macroeconomic factors on firm's cash holding decision. Therefore, in an effort to increase the supply of external financing available to firms, policymakers may devise investment friendly environment by controlling macroeconomic factors.Originality/valueThis paper offers some insights on the macro determinants of cash holdings by investigating emerging economies. It explores the role of macroeconomic conditions on corporate cash holdings in terms of their influence on the costs of external funds and financial constraints.

Purpose This paper aims to explore how Sharia principles could impact capital structure determinants and speed of adjustment of Islamic banks (IBs) compared to conventional banks (CBs) in the Gulf Cooperation Council countries (GCC). Design/methodology/approach This study applies the autoregressive distributed lag (ARDL) approach for a sample of 69 banks listed on GCC stock markets over the period 2009–2018. Findings Regression results indicate that tangibility and bank size are positively related to book leverage of both IBs and CBs, whereas profitability, liquidity and risk are negatively related. For growth opportunities, the results show opposing effect on book leverage of IBs and CBs, regarding macroeconomic variables, the authors find that gross domestic product and financial development are negatively related to book leverage of both IBs and CBs, whereas oil price change is positively related. Moreover, the authors find that IBs slowly adjust their capital structure toward the desired leverage ratio than CBs. In sum, the capital structure of IBs appears to be driven by similar factors to those previously found in the corporate finance literature. Research limitations/implications This research contributes to the theory in re-validating capital structure theories on IBs. It helps understand the capital structure of IBs in comparison with CBs. It highlights some areas where further research on topics related to capital structure of IBs is needed. Practical implications The paper can contribute to policymakers and governance function in understanding the choice of capital structure for IBs within the bound of Sharia requirement in different economic climate through its relation with the macroeconomic variables. Practically, the directors and managers can predict the best capital structure to be achieved by IBs in ensuring their performance is at par, in their quest of additional capital. Originality/value This paper offers some insights on the determinants of capital structure by investigating IBs and CBs. It explores the implication of relevant Islamic principles on capital structure. Moreover, it analyses the determinants of capital structure using ARDL method that permits to identify the short-run and long-run relationships between capital structure and its main determinants.

Purpose The purpose of this paper is to investigate the effect of Shariah compliance status on corporate cash holding decision. Design/methodology/approach This study applies ordinary least square and generalized method of moments regression models for a sample of 178 Malaysian listed firms over the period 2008–2017. Findings The results show that Shariah compliance has positive impact on the level of cash reserves of firms. It is also found that Shariah-compliant (SC) firms quickly adjust their level of cash holdings toward a target level than non–Shariah-compliant (NSC) firms. These results can be explained by the restrictions imposed by Shariah rules on firms to sustain their compliance status. Further, the results reveal that SC firms are likely to hold more cash out of their cash flows. This is the expected result, as the firms operating within the ambit of Shariah rulings and regulations face external financing constraints. Practical implications This study has important implications for managers, policymakers and regulators. For managers, the study is an important reference to understand and design cash management policies by considering restrictions imposed by Shariah regulations. In particular, managers should pay more attention to periods of credit crunch and weak economic conditions in which SC firms may be exposed to greater bankruptcy risks. For policymakers and regulators, this study may be useful in assessing the effect of the restrictions imposed by Shariah law on firm’s cash holding decision. Therefore, in an effort to increase the supply of external financing available to SC firms, policymakers should encourage the issuing of Islamic financial products. Originality/value This paper focuses on SC firms where financial constraints are bound to be more stringent than for NSC firms. It explores the implications of relevant Islamic principles on corporate cash holdings.