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J. Risk Financial Manag. 2011, 4(1), 1-42; doi:10.3390/jrfm4010001
Article

Corporate Governance and Corporate Creditworthiness

Finance Department, College of Business, BSN 3127, University of South Florida, 4202 E. Fowler Ave., Tampa, FL 33620 – 5500, USA
Published: 31 December 2011
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Abstract

We examine the relation between corporate governance and bankruptcy risk as an underlying force affecting a bond’s yield. The level of corporate governance is captured by the G-index, along with the explicit groups of governance provisions. We estimate bankruptcy risk by Z-score, by cash-flow-score, by O-score, through Merton structural model default probabilities, and by S&P credit ratings. After addressing endogeneity and while controlling for firm-specific factors, based on the four objective methodologies we find that corporate governance is inversely related to bankruptcy risk. Yet, rating agencies take a mixed approach towards this association likely because of the conflicting impact of different governance provisions.
Keywords: Corporate governance; bankruptcy risk; G-index; endogeneity tests; corporate governance provisions Corporate governance; bankruptcy risk; G-index; endogeneity tests; corporate governance provisions
This is an open access article distributed under the Creative Commons Attribution License (CC BY 3.0).

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Parnes, D. Corporate Governance and Corporate Creditworthiness. J. Risk Financial Manag. 2011, 4, 1-42.

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