Can we predict the likelihood of financial distress in companies from their corporate governance and borrowing?

Sara Sofia Gomes Mariano, Javad Izadi and Maurice Pratt

International Journal of Accounting & Information Management, 2021, vol. 29, issue 2, 305-323

Abstract: Purpose - The purpose of this study is to investigate the impact of corporate governance structures on the likelihood of financial distress in UK listed companies. The paper examines the impact of borrowing and corporate governance structures on financial distress likelihood in UK companies. Design/methodology/approach - The study uses a quantitative approach with financial, governance and borrowing measures and data from 270 firm-observations between 2010 and 2018. The study analyses the impact of borrowing and corporate governance structures to indicate financial distress likelihood in British companies. Corporate governance variables such as ownership concentration, independence indicators, chief executive officer duality, director remuneration and corporate loans are considered, as well as the UK Corporate Governance Code. Findings - The results indicate that companies with low ownership concentration and a low degree of independence are more likely to incur financial distress. Larger boards and better director remuneration can reduce financial distress likelihood and the existence of corporate loans can increase this likelihood. Empirical consideration of corporate borrowing is a new contribution to the literature. Originality/value - Variables are highlighted and aggregated that have not otherwise been studied together; the UK Corporate Governance Code’s main ideas are empirically supported; the study is useful for defining corporate governance structure strategies.

Keywords: Corporate governance; Financial distress; Corporate borrowing; Director remuneration (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:ijaimp:ijaim-08-2020-0130

DOI: 10.1108/IJAIM-08-2020-0130

Access Statistics for this article

International Journal of Accounting & Information Management is currently edited by Dr Xin (Robert) Luo and Professor Han Donker

More articles in International Journal of Accounting & Information Management from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().