Corporate Governance and Bankruptcy Risk

50 Pages Posted: 18 Nov 2010 Last revised: 4 Sep 2014

See all articles by Ali F. Darrat

Ali F. Darrat

Louisiana Tech University - College of Business

Stephen Gray

University of Queensland - Business School; Duke University - Fuqua School of Business; Financial Research Network (FIRN)

Jung Chul Park

University of South Florida

Yanhui Wu

Queensland University of Technology - School of Economics and Finance

Date Written: May 12, 2014

Abstract

We examine how firm characteristics, particularly the degree of firm complexity and the firm’s need for specialty knowledge, affect the relationship between corporate governance and the risk of bankruptcy. We find that having larger boards reduces the risk of bankruptcy only for complex firms. Our results also suggest that the proportion of inside directors on the board is inversely associated with the risk of bankruptcy in firms that require more specialist knowledge, and that the reverse is true in technically unsophisticated firms. The results further reveal that the additional explanatory power from corporate governance variables becomes more pronounced as the time to bankruptcy is increased, implying that although corporate governance variables are important predictors, governance changes are likely to be too late to save a firm on the verge of bankruptcy.

Keywords: Bankruptcy, Corporate Governance, Board Characteristics, CEO Characteristics, Management Characteristics

JEL Classification: G33, G30

Suggested Citation

Darrat, Ali F. and Gray, Stephen and Park, Jung Chul and Wu, Yanhui, Corporate Governance and Bankruptcy Risk (May 12, 2014). Available at SSRN: https://ssrn.com/abstract=1710412 or http://dx.doi.org/10.2139/ssrn.1710412

Ali F. Darrat

Louisiana Tech University - College of Business ( email )

Department of Economics & Finance
P.O. Box 10318
Ruston, LA 71272
United States
318-257-3874 (Phone)
318-257-4253 (Fax)

Stephen Gray (Contact Author)

University of Queensland - Business School ( email )

University of Queensland
Brisbane, Queensland 4072
Australia

Duke University - Fuqua School of Business

Box 90120
Durham, NC 27708-0120
United States

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Jung Chul Park

University of South Florida ( email )

Tampa, FL 33620
United States
813-974-9680 (Phone)
813-974-3084 (Fax)

HOME PAGE: http://www.usf.edu/business/contacts/park-jung-chul.aspx

Yanhui Wu

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia

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