Corporate Governance and Bankruptcy Risk
50 Pages Posted: 18 Nov 2010 Last revised: 4 Sep 2014
Date Written: May 12, 2014
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: Suggested Citation