Corporate Failure, Financial Performance, and Regulatory Oversight: Empirical Evidence from Financial Institutions listed on the Lusaka Securities Exchange

Abstract

This study investigates corporate failure among financial service institutions listed on the Lusaka Securities Exchange (LUSE), examining the role of financial performance and regulatory oversight. The study data were collected from six (6) LUSE-listed financial institutions, namely, Zambia National Commercial Bank (Zanaco Bank Plc), Absa Bank Plc, Standard Chartered Bank Plc, Investrust Bank Plc, Madison Financial Services Plc, and Zambia Reinsurance Plc. The study finds that weak financial performance, inadequate governance, and regulatory non-compliance are significant predictors of corporate failure, exemplified by the collapse of Investrust Bank. Conversely, strong financial indicators, effective risk management, and robust regulatory oversight correlate with sustainable operations and firm value, as observed in Zanaco Plc and Standard Chartered Plc. The findings highlight the importance of proactive monitoring, risk-based regulation, and governance interventions to prevent financial distress. The study proposes a diagnostics model that will prevent financial institutions from failure. When the model is operationalized and adopted for use, it is envisaged that financial institutions to a larger extent will benefit from its early warning signals, like those used in the traffic lights—red, amber, and green. The red signals a financial institution in the intensive care unit (ICU), meaning that its collapse is invertible; amber signals a financial institution with moderate weaknesses in the variables that requires attention; and green signals a healthy financial institution requiring nurturing and continuous improvement to sustain that healthy condition.