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Does corporate governance quality affect default risk? The role of growth opportunities and stock liquidity

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  • Ali, Searat
  • Liu, Benjamin
  • Su, Jen Je

Abstract

A series of defaults, a distinctive corporate environment and inconclusive findings in literature make Australia an interesting case in which to investigate the association between corporate governance and default risk. Using a large panel of 1086 non-financial firms from 2001 to 2013, we find that better governed firms are strongly associated with a lower level of default risk, and that the association is stronger among firms with more growth opportunities. Moreover, empirical evidence supports the role of stock liquidity as a channel of the relationship. Overall these findings have practical implications for the stakeholders in Australia.

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  • Ali, Searat & Liu, Benjamin & Su, Jen Je, 2018. "Does corporate governance quality affect default risk? The role of growth opportunities and stock liquidity," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 422-448.
    • Handle: RePEc:eee:reveco:v:58:y:2018:i:c:p:422-448
    DOI: 10.1016/j.iref.2018.05.003
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    More about this item

    Keywords

    Corporate governance; Default risk; Growth opportunities; Stock liquidity; Heterogeneity analysis; Channel;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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