The Effect of Board Composition on Financial Distress
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This research study examines the impact of board composition on financial distress in the UK retail sector, with a focus on ASDA. It explores the importance of effective board composition in managing financial allocation and usage within a company.
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THE EFFECT OF BOARD COMPOSIITON ON FINANCIAL DISTRESS
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Table of Contents Table of Contents.............................................................................................................................2 INTRODUCTION...........................................................................................................................3 STATE OF ART..............................................................................................................................3 Knowledge gap...........................................................................................................................4 Research objectives.....................................................................................................................5 Research questions......................................................................................................................5 Contribution................................................................................................................................5 Context of study..........................................................................................................................5 RESEARCH METHODOLOGY.....................................................................................................6 REFERENCES................................................................................................................................8
Title: “To assess the impact of the composition of the board over the financial distress within the company. A study on UK retail sector.” INTRODUCTION The financial distress is a situation wherein the company is not able to meet its entire debt obligation and other liabilities. For the success of the company it is very essential that the company effectively chooses the composition of the board (Ombaba and Kosgei, 2017). This is majorly because of the reason that when the board of directors are not good then they are not able to manage the allocation and proper use of the finance. Thus, for this the present research is conducted over the UK retail industry that what are the effects of the board composition over the financial distress of the company. The current research is based over the company ASDA which is a company headquartered in Leeds UK and was founded in the year 1949 by Sir Neol Stockdale and the Peter and Fred Asquith. The company deals in general merchandising, groceries, services relating to finance and many other different fields. The current research will outline the impact of composition of board of the directors and what they have over the financial distress. Rationale The major reason for the selection of the topic of effect of board over the financial distress is that major issue in the company and its functioning. This is due to the reason that if the finance within the company will not be allotted in proper and effective manner then this will affect the whole working of the company to a great extent. This is due to the reason that the finance is the only source through which the company is being operating. Thus, this was the major reason behind the operations and effective working of the company. Another major reason behind the selection of this topic is the personal and academic interest of the researcher. This is due to the fact that the researcher also wants to get the knowledge of the way of managing the financial distress in the company. STATE OF ART In the views ofKhurshid and et.al, (2019)the financial distress is related with the condition that the company or the person is not able to generate the income as it is not able to pay off its financial obligations. The financial distress can happen because of many different reasons and the major one is the reduced income and no reduction in the expenses. This will
cause financial distress as the company will not be able to meet the expenses with the reducing income level and this will create a problem in paying back the liabilitiesand financial obligations. Thus, this causes the company to face the financial distress and this affects the profitability of the company to a great extent and this also affects the overall working of the company. In addition to thisFairhurst (2017)argues that the major reason is the composition of the board of the directors. This is majorly because of the reason that when the composition of the board that is the board of the directors will not be good and effective then they will not be able to manage the finance and its proper utilisation in the company. Thus, this will have a great impact over the financial position of the company. Thus, for the effective use of the finance in the business the most important thing is the proper recruiting of the board of directors as they are responsible for the proper allocation and usage of the finance. In the words ofManzaneque, Priego and Merino (2016)articulates that there are many different challenges which the company faces at time of managing the finance and the financial distress within the company. This is majorly because of the reason that finance is very tough to be allocated and this makes it difficult for the company in effectively use the finance. The major challenge is the use of finance itself that is it is very essential for the board of directors to make sure that they effectively prioritise all the areas where the finance is essential and to make sure that whether the company will be able to manage the finance or not. If not then this will create a challenge among the board of the company that how they have to make proper and effective use of the finance in optimum manner. But in against of thisTarus and Ayabei (2016)stated that the major challenge faced is that every person in the board of directors is different and their requirement and perception relating to things is also different. Thus, for this there might be personal conflicts relating to the utilisation and allocation of the finance in optimum manner. Thus, this creates issues and challenges in managing financial distress as every board of director wants that there opinion is followed and used by the company even if it is not correct. Knowledge gap With the existing literature there can be seen that there are many different types of issues in the existing literature and the thing which was required by the researcher. This is majorly because of the reason that many of the people are not having proper knowledge relating to the
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concept of financial distress. Thus, due to this major reason there are many of the issues relating to the previous and the existing and the future researches yet to come. Research objectives Aim “To investigate the impact of the composition of the board over the financial distress within the company. A study on ASDA.” Objectives To understand the concept of financial distress. To evaluate the relationship between the board composition and the financial distress. To examine the challenges which the composition of board in managing the finance with the respect of ASDA. To recommend some of the measures and ways for management of finance in the company. Research questions 1.What do you mean by financial distress? 2.What is the relation between the board of composition and the financial distress? Contribution The contribution which the current research will do in the literature is that this research will help the reader in gaining a lot of knowledge relating to the concept of financial distress. This will assist the other companies as well in managing their finance and make sure that there is no situation of financial distress among the company and the employees working in the company. Another major contribution of the present research is that this will assist the other similar companies as well in managing the financial distress among the company. In addition to this, the current research will contribute or help the other researchers as well in managing and conducting the research on the same of related topic (Shunu, 2017). Context of study The major context or the aim of the research is at finding out the major reason behind the financial distress taking place at the company. This is the major research question as what is the effect of the composition of the board over the financial distress within the company. This is essential because of the reason that if the financial distress will not be managed then the
profitability and the working efficiency of the company will be hampered and profitability of company will decrease. RESEARCH METHODOLOGY Research type- there is many different methods or ways in which the whole research can be conducted but the major are qualitative and quantitative research (Hennink, Hutter and Bailey, 2020). The former is referred to as the research which is based on the numbers and the numeric facts and figures relating to the topic of research. On the other side the latter type of research is the one which is totally based over the non- numeric information and attributes and values.In order to complete the current study the researcher will use the qualitative research as they wanted to develop theoretical knowledge with relation to the topic of research and not the numeric information or the facts and figures. Research approach- this is referred to as the assumptions which are based over the selection of the various methods of research. This approach is of two types that is inductive and deductive approach. The inductive is the one which includes the framing of aim and objective and then making the whole study in that direction and deductive is the one in which hypothesis in respect to research topic are made and then tested. For the current study the inductive approach will be used as this will focus on making of aim and objective and then directing the whole study in the attainment of the aim. Research philosophy- the philosophy is defined as the different types of beliefs and the values which underlies the use of the method of research. This is also of two types that is positivism and interpretivism. The first one is related with the use of factual information and database relating to the research topic and the second one aims at integrating the human efforts in the completion of research. In the completion of present research, the researcher will make use of the interpretivism as philosophy as this will assist the researcher in making the other people develop interest in the research. Data collection- this is the most essential thing for the completion of research as if there will not be data relating to the research topic then the research will not be successful. Thus, for this there are two sources that are primary and the secondary (Bell, Bryman and Harley, 2018). The former is related with collecting new and first hand data and the later is related to the collection of data from the existing published sources of data only. In the current research
completion the scholar will make use of the combination of both primary and secondary source as this will provide more reliable and valid database relating to research topic. Sampling- this is also very essential to select the sample from the whole population and this is because of the reason that this will help the researcher in analysis of the data. For the current study the researcher will make use of the random sampling method and this is selected for the reason that under this method every participant of population has equal chance of getting selected. Under this method the sample selected for the study is 50 employees of the company. The major reason underlying the fact that sample is limited is that there is not much time to conduct the study over all the employees of company and because of this reason the 50 sample is selected with help of random sampling method. The sample will include the management of the company and some of the people belonging from the board as well. Data analysis- this is also the most important stage in the completion of the research and this is due to the reason that if the data will not be analysed in proper manner then the research will be completed (Ghauri, Grønhaug and Strange, 2020). For this there are two methods that is thematic and non- thematic analysis. For the present research, the researcher will make use of the thematic analysis and through this the researcher will make use of themes and charts and tables and then the interpretation will be provided to the research. Ethical consideration- this is also very essential for the success of the research as if the research will not be completed in successful manner. This is necessary because of the reason that when the research is completed on the basis of the ethical principles then the research will outline better results. Thus, for this the most essential thing is the signing of the ethical approval form from the research participant. This will make sure that the respondent is giving permission to use the personal information in the research. Reliability and validity- this makes sure that the research and the data collected for the research needs to be reliable and valid. This is basically because of the reason that when the data will be collected from the reliable and valid sources then the whole research will be good and effective.For ensuring the reliability and validity of the research data samequestions will be asked from a variety of the employees and the conclusion will be drawn by comparing the majority of the similar answers.
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REFERENCES Books and Journals Bell, E., Bryman, A. and Harley, B., 2018.Business research methods. Oxford university press. Fairhurst, K., 2017.Investigating funding board composition and turnaround potential of private firms in financial distress(Doctoral dissertation, University of Pretoria). Ghauri,P.,Grønhaug,K.andStrange,R.,2020.Researchmethodsinbusinessstudies. Cambridge University Press. Hennink, M., Hutter, I. and Bailey, A., 2020.Qualitative research methods. SAGE Publications Limited. Khurshid, M.K., and et.al, 2019. IMPACT OF OWNERSHIP STRUCTURE AND BOARD COMPOSITION ON FINANCIAL DISTRESS OF PAKISTAN STOCK EXCHANGE LISTED MANUFACTURING FIRMS. Manzaneque, M., Priego, A.M. and Merino, E., 2016. Corporate governance effect on financial distress likelihood: Evidence from Spain.Revista de Contabilidad.19(1). pp.111-121. Ombaba, K.B.M. and Kosgei, D., 2017. Board Composition and Financial Distress of Listed FirmsinKenya.AnEmpiricalAnalysis.JournalofFinanceandInvestment Analysis.6(4). pp.75-93. Shunu, A.H., 2017.Effect of Board Composition on Financial Performance of Listed Firms in Nairobi Securities Exchange(Doctoral dissertation, Garissa University). Tarus, D.K. and Ayabei, E., 2016. Board composition and capital structure: evidence from Kenya.Management Research Review.
APPENDIX Questionnaire Name: Age: Gender: Q1. Are the employees aware what financial distress means? Yes No Q2. Does the company is having knowledge relating to the financial distress? Strongly agreed Agreed Neutral Disagreed Strongly disagreed Q3. Is there any relation among the composition of board and the financial distress? Yes No Q4. What is the impact of good board composition over the financial distress within the company? Positive Negative No impact Q5. What is the relation between the composition of the board and the financial distress taking place in company? Board only decide for use of finance Sources of finance are decided by board only All the decision are taken by board All of the above Q6. What is the impact of the good relation among the effective board and proper deicison of finance?
Working of company will increase Finance will be managed in effective way All activities will be coordinated All of the above Q7. Are there any of the challenges being faced by the board in managing the financial distress within the company? Yes No Q8. Out of the following which are the major challenges being faced by the company in the management of the financial distress? Biasness of board members Personal differences among board members Difference in perception and thinking capacity of the board members All of the above Q9. What are the major recommendations for the company in managing financial distress within the company?