Predicting the risk of financial distress using corporate governance measures

Zhiyong Li, Jonathan Crook, Galina Andreeva, Ying Tang

Research output: Contribution to journalArticlepeer-review

Abstract

Corporate governance is an important determinant of corporate performance. Poor corporate governance can damage the interests of shareholders, and may lead to business collapse. This paper expands the literature on credit risk management by assessing the effectiveness of aspects of corporate governance for predicting financial distress in a dynamic discrete-time survival analysis model. It is a comprehensive, up-to-date and thorough study, which uses a large range of corporate governance measures, financial ratios and macroeconomic variables in a panel data structure over a 17-year period. Furthermore, the paper addresses the relationship between government ownership and the risk of financial distress in China. The results suggest that although corporate governance alone is not sufficient to accurately predict financial distress, it can add to the predictive power of financial ratios and macroeconomic factors. In addition, the model provides insights into the role of state ownership, independent directors, institutional investors and some personal characteristics of the Chair of the board. Implications are made regarding them and the debt and bankruptcy problem in China and Asia.
Original languageEnglish
Article number101334
Number of pages14
JournalPacific-Basin Finance Journal
Early online date19 Apr 2020
DOIs
Publication statusE-pub ahead of print - 19 Apr 2020

Keywords

  • corporate governance
  • credit risk
  • survival analysis
  • financial distress
  • ownership structure

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