The Effect of Board Composition on Financial Distress: ASDA Case Study

This report examines the impact of board composition on financial distress, focusing on the UK retail sector and using ASDA as a case study. The introduction highlights the importance of board composition for effective financial management, emphasizing the potential consequences of poor board performance. The state of art reviews existing literature on financial distress and its causes, including the challenges of managing finance and the role of board composition. The research objectives aim to understand financial distress, evaluate the relationship between board composition and financial distress, examine challenges, and recommend financial management measures. The research methodology outlines a qualitative approach using an inductive research approach and interpretivism philosophy. Data collection involves a combination of primary and secondary sources, with a sample of 50 employees, employing random sampling. Data analysis will be conducted using thematic analysis. Ethical considerations, including obtaining ethical approval, are also addressed. The report contributes to the existing literature by providing insights into the relationship between board structure and financial health, offering valuable information for companies and researchers alike. The study highlights the critical link between effective board composition and the ability to mitigate financial distress, underscoring the importance of strategic financial management.

THE EFFECT OF BOARD
COMPOSIITON ON
FINANCIAL DISTRESS

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 of Khurshid 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 liabilities and 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 this Fairhurst (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 of Manzaneque, 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 this Tarus 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

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 same questions will be
asked from a variety of the employees and the conclusion will be drawn by comparing the
majority of the similar answers.

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. and Strange, R., 2020. Research methods in business studies.
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
Firms in Kenya. An Empirical Analysis. Journal of Finance and Investment
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?