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Corporate Governance and Corporate Creditworthiness

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  • Dror Parnes

    (Finance Department, College of Business, BSN 3127, University of South Florida, 4202 E. Fowler Ave., Tampa, FL 33620 – 5500, USA)

Abstract

We examine the relation between corporate governance and bankruptcy risk as an underlying force affecting a bond’s yield. The level of corporate governance is captured by the G-index, along with the explicit groups of governance provisions. We estimate bankruptcy risk by Z-score, by cash-flow-score, by O-score, through Merton structural model default probabilities, and by S&P credit ratings. After addressing endogeneity and while controlling for firm-specific factors, based on the four objective methodologies we find that corporate governance is inversely related to bankruptcy risk. Yet, rating agencies take a mixed approach towards this association likely because of the conflicting impact of different governance provisions.

Suggested Citation

  • Dror Parnes, 2011. "Corporate Governance and Corporate Creditworthiness," JRFM, MDPI, vol. 4(1), pages 1-42, December.
    • Handle: RePEc:gam:jjrfmx:v:4:y:2011:i:1:p:1-42:d:28372
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    References listed on IDEAS

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    1. Miron Vasile-Cristian-Ioachim, 2015. "Social Responsability And Corporate Governance In Evaluating The Performance Of Economic Entities," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 5, pages 151-159, October.

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