Corporate governance and the insolvency risk of financial institutions

Searat Ali, Nazim Hussain and Jamshed Iqbal

The North American Journal of Economics and Finance, 2021, vol. 55, issue C

Abstract: We investigate whether shareholder-friendliness of corporate governance mechanisms is related to the insolvency risk of financial institutions. Using a large sample of U.S. financial institutions over the period 2005–2010, we find that corporate governance is positively related to the insolvency risk of financial institutions as proxied by Merton’s distance to default measure and credit default swap (CDS) spread. We also find that “stronger” corporate governance increases insolvency risk relatively more for larger financial institutions and during the period of the financial crisis. Lastly, our results suggest that shareholder-friendliness of corporate governance mechanisms is viewed unfavorably in the bond market.

Keywords: Corporate governance; Insolvency risk; Bank risk-taking; Financial crisis; Financial institutions (search for similar items in EconPapers)
JEL-codes: G01 G20 G21 G30 G32 G34 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:55:y:2021:i:c:s1062940820301996

DOI: 10.1016/j.najef.2020.101311

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