The Role of Corporate Governance in Firm's Financial Distress: Pre- and Post-Internal Controls Instruction

Nowadays, with a more competitive capital market, and also more complicating market which investors are dealing with, it is not easy for market participants to distinguish between Financially Distressed and healthy firms. Accounting ratios and trend analyzes, in the literature was one of the ways of differentiate between those foresaid firms. This articles is about to investigate the role of corporate governance mechanism in diagnosing firms financial distress, alongside accounting ratios and market related information. The internal controls instruction also is regarded as a regulation in corporate governance and its impact on above mentioned role of corporate governance is under investigation. Sample includes 182 firms listed in Tehran stock exchange, during 2008 to 2017, is under statistical test. The test research hypothesis, multivariate regression analysis with Logit approach is used. Finding indicates that corporate governance has significant role in decreasing financial distress, but internal controls instructions, couldn’t strengthen mentioned role