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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
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
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Cite This Article
MDPI and ACS Style
Parnes, D. Corporate Governance and Corporate Creditworthiness. J. Risk Financial Manag. 2011, 4, 1-42.
Parnes D. Corporate Governance and Corporate Creditworthiness. Journal of Risk and Financial Management. 2011; 4(1):1-42.
Parnes, Dror. 2011. "Corporate Governance and Corporate Creditworthiness." J. Risk Financial Manag. 4, no. 1: 1-42.