Corporate Governance and Corporate Creditworthiness

Dror Parnes
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Dror Parnes: Finance Department, College of Business, BSN 3127, University of South Florida, 4202 E. Fowler Ave., Tampa, FL 33620 – 5500, USA

JRFM, 2011, vol. 4, issue 1, 1-42

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 (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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