Does Corporate Governance Quality Reduce Financial Distress? New Panel Evidence from Australia

2016 Accounting & Finance Association of Australia and New Zealand Conference

27th Australasian Finance and Banking Conference 2014 Paper

Posted: 18 Aug 2014 Last revised: 12 Jan 2017

See all articles by Searat Ali

Searat Ali

University of Wollongong; University of Wollongong - School of Accounting, Economics & Finance

Benjamin Liu

Griffith University - Department of Accounting, Finance and Economics

J.J. Su

Griffith University

Date Written: August 18, 2014

Abstract

A series of corporate collapses, a distinctive corporate environment and contradictory findings in literature make Australia an interesting case in which to investigate the association between corporate governance quality (CGQ) and financial distress. In this paper, using a large panel of 1,086 non-financial firms (8,950 observations) from Australia over the period from 2001 to 2013, we construct a composite CGQ index and provide new evidence on the association between CGQ and the financial distress of firms. We find that better governed firms are clearly associated with a lower level of financial distress in Australia, even after controlling for a potential endogeneity bias. These findings are robust to alternative proxies of governance quality, different estimation techniques, and alternative sample specification. We also find that the inverse relationship between CGQ and financial distress is stronger in firms with more growth opportunities and in the post-CG reforms period. These findings are generalizable to the wider economy and have practical implications for regulators and investors.

Keywords: Corporate governance, financial distress, governance reforms, growth opportunities, financial crisis

JEL Classification: G01, G33, G34, G38

Suggested Citation

Ali, Searat and Ali, Searat and Liu, Benjamin and Su, J.J., Does Corporate Governance Quality Reduce Financial Distress? New Panel Evidence from Australia (August 18, 2014). 2016 Accounting & Finance Association of Australia and New Zealand Conference, 27th Australasian Finance and Banking Conference 2014 Paper, Available at SSRN: https://ssrn.com/abstract=2481892

Searat Ali (Contact Author)

University of Wollongong ( email )

Northfields Avenue
Wollongong, NSW 2522
Australia
+61242392211 (Phone)

University of Wollongong - School of Accounting, Economics & Finance ( email )

Northfields Avenue
Wollongong, NSW 2522
Australia
+61242392211 (Phone)

Benjamin Liu

Griffith University - Department of Accounting, Finance and Economics ( email )

PMB 50
Gold Coast Queensland 9726
Australia

J.J. Su

Griffith University ( email )

170 Kessels Road
Nathan, Queensland QLD 4111
Australia

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