Corporate Governance and Default Risk in Financial Firms Over the Post Financial Crisis Period: International Evidence

36 Pages Posted: 24 Feb 2016

See all articles by Lorne Switzer

Lorne Switzer

Concordia University, Quebec, John Molson School of Business, Students

Jun Wang

Concordia University, Quebec

Qiao Tu

Concordia University, Quebec

Abstract

This paper looks at the post-financial-crisis period, and the relationship between default risk and corporate governance for financial firms outside North America. Default risk is measured by both credit default swap spreads (CDS) and the Merton-type default probabilities from Bloomberg. Our evidence suggests that institutional ownership and board independence are negatively related to Merton-type default risk, while insider holdings, CEO duality, and board size positively relate to default risk for our whole sample firms. When we use CDS spread as a risk measure, board size and institutional holdings still show significant impact on firms’ default risk, while board independence shows mixed results. Moreover, we find that the impacts of various governance variables on firm default risk are continent-specific: most governance variables are significantly related to default risk for Asian firms; for European firms, however, only board size and institutional holdings are significant.

Keywords: Institutional Investors; Credit Spreads; Information Asymmetry; Corporate Governance : Institutional Investors; Credit Spreads; Information Asymmetry; Corporate Governance : Institutional Investors; Credit Spreads; Information Asymmetry; Corporate Governance: Institutional Investors; Credit Spreads;

JEL Classification: G12, G20, G34

Suggested Citation

Switzer, Lorne and Wang, Jun and Tu, Qiao, Corporate Governance and Default Risk in Financial Firms Over the Post Financial Crisis Period: International Evidence. Melbourne Business School, 2016 Financial Institutions, Regulation & Corporate Governance (FIRCG) Conference, Available at SSRN: https://ssrn.com/abstract=2736063 or http://dx.doi.org/10.2139/ssrn.2736063

Lorne Switzer (Contact Author)

Concordia University, Quebec, John Molson School of Business, Students ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1M8
Canada

Jun Wang

Concordia University, Quebec

Qiao Tu

Concordia University, Quebec ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1MB
Canada

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