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

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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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) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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

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