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Corporate governance and failure risk: evidence from Estonian SME population

Author

Listed:
  • Virgo Süsi
  • Oliver Lukason

Abstract

Purpose - The purpose of this study is to find out how corporate governance is interconnected with failure risk in case of small- and medium-sized enterprises (SMEs). Design/methodology/approach - The study is based on Estonian whole population of SMEs, in total 67,058 observations, and data are obtained from Estonian Business Register. Failure risk (FR) is portrayed with a well-knownAltmanet al.(2017) model, while seven variables reflecting corporate governance (CG) based on previous studies have been selected. As the method, logistic regression (LR) is applied with FR in the binary form as a dependent variable and seven CG variables as independent. The effect of firm size and age is studied with two separate LR models. Findings - The results indicate that with the growth in manager’s age and the presence of managerial ownership, failure risk reduces. In turn, the presence of larger boards and managers having directorships in other firms leads to higher failure risk. Gender heterogeneity in the board, board tenure length and ownership concentration by means of having a majority owner are not associated with failure risk. The obtained results vary with firm size and age. Originality/value - Unlike this study, research published on this topic earlier has used a much narrower definition of failure, mostly focused on large and listed companies, been sample based and information about corporate governance variables has often been obtained through questionnaires. All these limitations are relaxed in this population level study.

Suggested Citation

  • Virgo Süsi & Oliver Lukason, 2019. "Corporate governance and failure risk: evidence from Estonian SME population," Management Research Review, Emerald Group Publishing Limited, vol. 42(6), pages 703-720, February.
  • Handle: RePEc:eme:mrrpps:mrr-03-2018-0105
    DOI: 10.1108/MRR-03-2018-0105
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    Citations

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    Cited by:

    1. Oliver Lukason & María-del-Mar Camacho-Miñano, 2021. "What Best Explains Reporting Delays? A SME Population Level Study of Different Factors," Sustainability, MDPI, vol. 13(9), pages 1-15, April.
    2. Keijo Kohv & Oliver Lukason, 2021. "What Best Predicts Corporate Bank Loan Defaults? An Analysis of Three Different Variable Domains," Risks, MDPI, vol. 9(2), pages 1-19, January.
    3. Oliver Lukason & Germo Valgenberg, 2021. "Failure Prediction in the Condition of Information Asymmetry: Tax Arrears as a Substitute When Financial Ratios Are Outdated," JRFM, MDPI, vol. 14(10), pages 1-13, October.

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